Market News

BY  Kelechukwu Mgboji

…laud CBN’s intervention

Nigeria’s fragile foreign exchange market is again under the spotlight as analysts warn that the naira’s recent gains may be short-lived without stronger foreign inflows and decisive reforms. Despite a modest appreciation in the local unit last in two weeks, experts caution that currency stability is being engineered by the Central Bank of Nigeria (CBN) rather than driven by genuine market fundamentals.

Fresh data show that total FX inflows into the system dropped to $567.2 million last week, a sharp 19.7 per cent decline from $706.7 million the week before. Foreign Portfolio Investments (FPIs) accounted for the largest share at $184.1 million (32.5%), underscoring Nigeria’s heavy reliance on volatile “hot money” flows.

The Central Bank of Nigeria (CBN) injected $173.1 million (30.5%), a reminder that official interventions remain central to market stability. Exporters and corporates added smaller contributions, while reserves inched up by $37.85 million to $41.31 billion.

The subdued FX inflows contrast sharply with the domestic money market picture. System liquidity opened at N1.40 trillion, surged to N1.99 trillion midweek on the back of hefty OMO repayments, and only moderated to N1.64 trillion after Treasury bill sales.

This wall of liquidity—averaging N1.70 trillion across the week— fueled intense demand at the CBN’s Primary Market Auction, where subscriptions topped N1.01 trillion, more than double the offer. That demand drove a rally in the secondary market, where Treasury bill yields fell 31bps to 18.57 per cent and FGN bond yields eased 13bps to 16.97 per cent.

Even Eurobond yields, though ticking higher by 5bps to 8.01 per cent, reflected more global than domestic caution. Chief Blakey Ijezie, a leading economic analyst, told New Telegraph that foreign portfolio inflows—the single largest source of hard currency last week—are already in retreat, contributing just 32.5 per cent of total supply compared with higher levels in prior weeks.

The CBN followed closely at 30.5 per cent underscoring how dependent the market has become on official intervention. “The worrying part is that these inflows are falling despite attractive interest rates in the Nigerian Treasury bill and bond markets,” Ijezie said.

“Nigeria, to be blunt, is not seen as an investment destination at the moment. Security issues, currency volatility, and weak confidence all weigh heavily,” said the economic expert. Investors, he added, are not persuaded by the lure of double-digit yields when the spectre of sudden devaluation looms.

“History is a guide. Foreigners saw the naira collapse from N400 to N700 under Buhari, then plunge to over N1,500 after 2023. They fear the next shock could push it to N3,000. That uncertainty keeps capital away.” David Adonri, another respected market operator, echoed similar concerns. While the naira gained slightly last week, he attributed the strength to the CBN’s renewed intervention rather than improved market confidence.

“The central bank does not print hard currency. If external inflows remain weak while reserves are depleted to defend the naira, the current stability cannot be sustained,” he warned.

Adonri acknowledged some positive macro signals, including government revenue gains and marginal improvements in GDP and inflation data, but stressed that from an FX standpoint, “those improvements are fragile.” He pointed to investor behaviour as a red flag: yields in the fixed income market have declined due to heavy demand, showing that investors are running for safety instead of taking equity risk.

Indeed, the equities market has been sliding in recent weeks, with banks—the market’s traditional engine—underperforming amid regulatory uncertainty. For Ijezie, the problem extends beyond monetary policy. He argues that leadership optics and governance play a powerful role in shaping investor sentiment.

“If your president prefers to vacation abroad instead of patronising local tourism, it sends the wrong signal. Investors are watching. Every trip abroad erodes confidence and tells both citizens and investors that Nigeria is unstable.” The analysts agree that without consistent governance at home and credible reforms in security, currency management, and fiscal discipline, foreign inflows will continue to shrink—leaving the naira’s apparent strength little more than a mirage.