Naira Averages 1.8% Depreciation In March Despite Higher Oil Prices

The naira exchange rate to the dollar weakened by an average of 1.8% in March, even as crude oil prices firmed, due to softer production levels and increased domestic oil allocations to local refineries that limited foreign-exchange earnings from exports.

Data from the Central Bank of Nigeria (CBN) showed the currency depreciating further on Tuesday at the official Nigerian Foreign Exchange Market (NFEM), closing at N1,386.66 per dollar—down N5.87 from N1,380.79 before the Easter holiday. In the parallel market, the naira appreciated by N5 to N1,405 per dollar, narrowing the gap between official and parallel rates to N19 from N30 last week.

External reserves, critical for currency support, declined for the 13th straight session by about $840 million to $49.18 billion as of April 1, from $50.02 billion on March 11. Analysts link the drawdown to weakening capital inflows amid escalating Middle East tensions, which have curbed investor appetite for frontier markets like Nigeria.

Foreign portfolio investment (FPI) inflows reached $1.6 billion in January and $1.9 billion in February on the FMDQ FX market, but March likely slowed due to geopolitical uncertainty, one analyst said anonymously.

Reports from Afreximbank, Quest Merchant Bank, and FMDA highlight broader FX pressures on Nigeria and African economies tied to the Middle East conflict. Quest Merchant Bank noted the naira depreciated 1.3% month-on-month to N1,387 per dollar in March 2026, reversing earlier gains amid tight FX liquidity.

Afreximbank reported the naira at N1,390.2 per dollar in March, up from N1,353.4 in February but below N1,558.7 a year earlier. “African foreign exchange markets came under renewed pressure in March 2026…reflecting external shocks and structural vulnerabilities,” the report stated, citing Middle East tensions driving a flight to U.S. dollar assets.

Quest analysts attributed the weakness to reduced offshore investor participation: “The ongoing conflict has triggered global risk-off sentiment toward emerging market assets.” FMDA added that the U.S. dollar strengthened against major and emerging currencies, amplifying pressures on the naira.

Nigeria’s FX stability faces ongoing strain from global risk aversion and declining inflows, underscoring its exposure to external shocks.