Market News

By Gregor Stuart Hunter

Nigeria’s foreign exchange market recorded a strong resurgence in February 2026, with total inflows rising sharply by 45 per cent month-on-month to $4.4 billion, reinforcing a third consecutive month of improving liquidity and offering renewed support for naira stability. 

Data from FMDQ Securities Exchange show that the uptick in FX supply was largely driven by heightened participation from offshore investors, who continue to take advantage of Nigeria’s high-yield environment in what analysts describe as a classic carry trade play. 

The development underscores a growing trend in the FX market where short-term capital flows—rather than long-term investments—are increasingly shaping liquidity dynamics and exchange rate stability. 

Offshore Investors Lead the Charge 

Foreign portfolio inflows emerged as the dominant driver of February’s FX performance, rising by 22 per cent month-on-month to $1.9 billion. 

This accounted for approximately 44 per cent of total FX inflows during the period, highlighting the outsized role of global investors in Nigeria’s currency market. 

Analysts attribute this surge to the wide interest rate differential between Nigeria and advanced economies, which has made naira-denominated assets particularly attractive to foreign investors seeking higher returns. 

With yields on fixed income instruments elevated, offshore players have continued to channel funds into the market, boosting liquidity and helping to moderate exchange rate volatility. 

Market watchers note that the persistence of these inflows has provided a buffer against external shocks, allowing the naira to trade within a relatively stable range despite underlying demand pressures. 

Timothy Adetola, a Lagos-based currency analyst, said: “The carry trade remains the primary magnet for foreign capital at the moment. As long as yields remain attractive and there is some level of confidence in FX market reforms, Nigeria will continue to see strong portfolio inflows.” 

Fragility Beneath the Surface 

However, beneath the headline growth in FX inflows lies a more concerning trend: the continued weakness in long-term foreign investments. 

Data show that foreign direct investment (FDI) declined by 21 per cent month-on-month to just $39.7 million in February, while inflows from foreign corporates dropped by 25 per cent to $116.3 million. 

This divergence between short-term and long-term capital flows highlights structural challenges within the Nigerian economy that continue to deter sustained investment. 

Economists point to lingering policy uncertainties, persistent security concerns, and infrastructural deficits as key factors undermining investor confidence. 

Unlike portfolio flows, which can be quickly deployed and withdrawn in response to market conditions, FDI typically reflects deeper, long-term commitments to an economy. 

The continued decline in this category suggests that while Nigeria may be attracting speculative capital, it is still struggling to secure the kind of investment needed for sustainable economic growth. 

“Portfolio inflows are helpful, but they are not a substitute for real investment,” said an investment strategist. “FDI brings jobs, technology, and long-term stability. The fact that it remains weak is a concern.” 

Domestic Sources Gain Momentum 

In contrast to the mixed performance of foreign inflows, domestic sources of FX supply recorded broad-based improvements during the period, contributing to the overall liquidity boost. 

The Central Bank of Nigeria played a pivotal role, significantly increasing its intervention in the FX market. The apex bank’s FX sales surged by an impressive 859 per cent month-on-month to $326.1 million. 

Although the absolute size of these interventions remains relatively modest compared to total market flows, the sharp increase signals a more active stance by the central bank in managing liquidity and addressing demand pressures. 

Analysts interpret this as a response to rising import demand, which has continued to exert pressure on the FX market. 

“The scale of intervention suggests that demand conditions were quite strong during the month,” said a currency trader. “The CBN appears to be stepping in more actively to smooth volatility and ensure adequate supply.” 

Exporters also made a significant contribution to FX inflows, collectively accounting for about 18 per cent of total supply. 

Non-oil exporters increased their inflows by 35 per cent month-on-month to $783 million, while oil exporters recorded a 10 per cent increase to $474 million. This reflects a gradual improvement in export proceeds repatriation, a key objective of ongoing FX reforms. 

In addition, inflows from individual local sources surged by 314 per cent month-on-month to $698 million, indicating increased participation from retail and diaspora-linked channels. 

Naira Stability Gets a Boost 

The combined effect of stronger offshore participation and improved domestic contributions has been a notable enhancement in overall market liquidity, which in turn has supported the relative stability of the naira. 

Over recent months, the Nigerian currency has shown signs of reduced volatility compared to earlier periods marked by sharp swings and persistent depreciation pressures. 

Market participants say the improved FX supply has helped narrow the gap between official and parallel market rates, boosting confidence among investors and businesses. 

“The stability we are seeing now is largely liquidity-driven,” said an economist. “When supply improves, pressure eases, and the market becomes more predictable.” 

However, experts caution that this stability remains contingent on the current inflow trends, particularly from offshore investors. 

Global Risks Cloud Outlook 

Looking ahead, the sustainability of Nigeria’s FX inflow momentum may face headwinds from global developments, particularly rising geopolitical tensions. 

The prolonged conflict in the Middle East has heightened global risk-off sentiment, prompting investors to reassess exposure to emerging markets. 

In such an environment, capital tends to flow into safer assets, potentially reducing the volume of funds available for carry trade opportunities in markets like Nigeria. 

“Global risk sentiment is a key variable,” analysts note. “If investors become more risk-averse, we could see a slowdown in portfolio inflows.” 

That said, a potential de-escalation of geopolitical tensions could reverse this trend, especially if Nigeria continues to offer compelling yields on its financial instruments. 

Market observers argue that the country’s ability to sustain high interest rates—while maintaining macroeconomic stability—will be critical in retaining foreign investor interest. 

Policy Imperatives Remain Critical 

Beyond external factors, domestic policy direction will play a decisive role in shaping the future trajectory of FX inflows. 

Experts emphasise the need for continued reforms to enhance transparency, improve market efficiency, and address structural bottlenecks that hinder long-term investment. 

Strengthening security, upgrading infrastructure, and ensuring policy consistency are seen as essential steps toward boosting investor confidence and attracting more stable capital flows. 

“The recent improvement in FX inflows is encouraging, but it is not enough,” said a financial analyst. “Nigeria needs to convert this momentum into sustained economic transformation by attracting more long-term investment.” 

Balancing Short-Term Gains with Long-Term Goals 

As Nigeria navigates its FX challenges, the February 2026 data present a mixed but cautiously optimistic picture. 

On one hand, the surge in FX inflows and improved liquidity signal a market that is gradually stabilising, supported by strong offshore participation and proactive domestic interventions. 

On the other hand, the continued weakness in FDI and other long-term inflows highlights the need for deeper structural reforms to ensure sustainable growth. 

For now, the carry trade remains a powerful driver of FX inflows, providing much-needed support to the naira and the broader economy. 

But as history has shown, reliance on short-term capital can be a double-edged sword—offering quick gains but also exposing the economy to sudden reversals. 

The challenge for policymakers, therefore, lies in leveraging the current inflow momentum while building a more resilient and diversified investment base that can withstand both domestic and global shocks. 

As global uncertainties persist and domestic reforms continue to evolve, Nigeria’s FX market will remain a critical barometer of the country’s economic health, and a key focus for investors at home and abroad.