Market News

The naira remained stable across foreign exchange (FX) markets on Monday, supported by steady inflows, with non-bank financial institutions and exporters contributing 62.44 percent of the total supply.

Non-banks refer to financial entities other than traditional commercial banks, such as asset managers, Bureau de Change (BDCs), pension funds, and other investment firms that participate in the FX market by trading foreign currency or facilitating transactions for clients.

After trading yesterday, the naira appreciated by N5.72 as the dollar was quoted at N1,600.43, marking a gain of 0.4 percent compared to N1,606.15 seen on Friday at the Nigerian Foreign Exchange Market (NFEM), data from the Central Bank of Nigeria (CBN) indicated.

Inflows into the NFEM window stood at $619 million, reflecting a 7.34 percent decline from the $668 million recorded the previous week, according to a report by Coronation Merchant Bank’s research arm.

The CBN contributed 18.00 percent of the total inflow, while Foreign Portfolio Investors (FPIs) accounted for 16.78 percent. Non-bank corporates led with 34.27 percent, followed by exporters at 28.17 percent. Other sources made up the remaining 2.78 percent.

At the parallel market, also known as the black market, the naira remained steady at N1,625 per dollar, according to street traders and data from the online data collating platforms.

In the FX market last week, the Naira lost 0.25 percent w/w against the dollar in the official spot market, closing at N1,606.15/US$1, marking the third week of decline in a row despite CBN’S intervention. The 1-month forward rate closed at N1,641.59/US$1. The 3-month forward contract rate closed at N1,707.37/US$1. The six-month forward contract closed at N1,799.21/US$1 as the 1-year forward rate closed at N1,988.66/US$1. At the parallel market, Naira lost 0.93 percent against the dollar, closing at N1,625.00/US$1 on Friday.

The World Bank said that Nigeria’s foreign exchange (FX) market turnover remains largely dominated by interventions from the Central Bank of Nigeria (CBN) and inflows from foreign portfolio investors (FPIs), despite recent reforms aimed at liberalising the market.

This was contained in the Bank’s latest Nigeria Development Update report emtitled, ‘Building Momentum for Inclusive Growth,’ released on Monday.

According to the report, while overall FX turnover has improved following recent policy changes, the market is still heavily reliant on CBN interventions, often aimed at managing volatility and short-term foreign portfolio investment attracted by high yields and potential revaluation gains.

“Although helpful as a source of FX, debt financing, and external adjustment, FPI flows are volatile, especially when they are short-term as is predominantly the case for Nigeria,” the report noted. “For full consolidation of the FX market, traditional sources of inflows such as oil exports and remittances must return consistently and substantially to the official window.”

The report also highlighted the impact of monetary and regulatory reforms on the FX market. Since the overhaul of FX regulations in early 2024, the market has seen improved stability, with the parallel market premium largely eliminated by mid-year. The adoption of a new interbank FX trading platform in December 2024 and the release of new operational guidelines enhanced transparency and price discovery.

In addition, the CBN’s reform of the bureau de change (BDC) segment, allowing limited and temporary access to the interbank market through authorised dealers was cited as a potentially transformative step. If permanently implemented, the World Bank said, this could help bridge the gap between the interbank and retail FX markets, which have long been dominated by informal transactions.

The unification and depreciation of the naira also played a key role in improving Nigeria’s external balances in 2024. The report stated that the current account balance (CAB) surged by 185 percent to $17.2 billion, or 9.2 percent of GDP, driven by compressed imports and higher formal remittance inflows, which reached an estimated $21 billion. While oil production rose, dollar earnings from oil exports declined, but non-oil exports increased by 25 percent, buoyed by the more competitive exchange rate.

The World Bank further reported a significant increase in FPI inflows, which grew by 110 percent to $13 billion in 2024, supported by higher yields on domestic debt instruments and a more transparent FX market. However, foreign direct investment (FDI) remained weak, still under 1 percent of GDP due to persistent structural challenges in the business environment.

Meanwhile, the ‘other investments’ category in the financial account recorded a net outflow, largely due to substantial repayments of foreign loans, reflecting continued strain in Nigeria’s external financing conditions despite the reforms.