The Nigerian naira is once again showing signs of weakness after a short-lived gain at the start of the week. As of Tuesday, the naira depreciation trend resumed both at the official and parallel foreign exchange markets, with analysts warning of continued pressure amid dwindling FX inflows.
At the official Nigerian Foreign Exchange Market (NFEM), data from the Central Bank of Nigeria (CBN) showed that the naira slid to ₦1,533.10/$, compared to ₦1,531.95/$ on Monday, a drop of ₦1.15 within 24 hours. The depreciation was more severe in the parallel market, where the currency weakened by ₦5, settling at ₦1,565/$, down from ₦1,560/$ the previous day.
Rising Reserves, Falling Confidence
Interestingly, the latest depreciation comes just days after the naira posted marginal gains on Monday, supported by an increase in Nigeria’s gross external reserves, which climbed to $39.54 billion as of August 1, 2025.
While rising reserves are typically seen as a positive sign for currency stability, experts say the naira’s vulnerability reflects deeper structural concerns, particularly the inconsistent flow of foreign exchange from external sources.
A market report by Coronation Merchant Bank noted that FX inflows declined to $791.10 million last week, down from $979.10 million the week prior. The reduced inflows are largely blamed for the naira’s sudden reversal, despite the reserve boost.
FX Inflows: Domestic Sources Fill the Gap
With foreign direct investment still low, the burden of FX inflows continues to fall on domestic players. According to the report, non-bank corporates accounted for 61.13% of last week’s inflows, totaling $483.60 million. Exporters and importers contributed $168.60 million (21.31%), while the CBN and individual contributions remained marginal at $68.40 million and $3.50 million, respectively.
Foreign portfolio investors (FPIs) — once the dominant players- contributed only $60.90 million, highlighting the lingering caution among international investors.
Street Premium Widens Again
As a result of the naira depreciation, the gap between the official and black market rates has widened. On Tuesday, the difference stood at ₦31.90, compared to just ₦21.20 at the beginning of the week.
This growing divergence adds to market uncertainty and raises concerns about currency arbitrage, which often thrives when official policies fail to close the gap between the two markets.
Market Outlook Remains Cautious
Despite this setback, analysts suggest that the naira may find some support in the short term if reserve accretion continues and investor sentiment improves following recent macroeconomic upgrades.
The International Monetary Fund (IMF) recently revised Nigeria’s economic growth outlook upward, a move that momentarily lifted the naira in the official market last week.
Still, analysts warn that low FX inflow volumes could limit any sustained appreciation of the currency. “We expect the FX market to remain within the ₦1,500–₦1,600 band, but tight liquidity and tepid investor confidence could restrict movement,” said a research note by Coronation.
A Dollar Weakening Abroad, Yet Naira Struggles at Home
Globally, the dollar has been showing signs of softness amid political uncertainty and speculation around U.S. Federal Reserve policies. But that weakness has not translated into relief for the naira.
The U.S. Dollar Index (DXY) was down 0.1% earlier this week, its lowest level in nearly four months following a disappointing U.S. jobs report. Despite this global trend, the naira continues to falter, signaling that Nigeria’s currency woes are more internal than external.
Capital Importation Trends Reveal Investor Sentiment
Data from the National Bureau of Statistics (NBS) shows that Nigeria recorded $5.64 billion in capital importation in Q1 2025. However, the bulk of this came from portfolio investments totaling $5.2 billion, reflecting short-term confidence rather than long-term commitments.
The United Kingdom was the leading source of FX into Nigeria with $3.68 billion, followed by South Africa and Mauritius. But foreign direct investment — the most stable type of capital inflow — remained low at just $126.29 million.
Bottom Line
The naira’s recent performance reveals the fragility of Nigeria’s foreign exchange landscape. While rising reserves provide a buffer, the lack of consistent foreign exchange inflow, persistent street market premiums, and over-reliance on domestic sources continue to pose risks.
Unless bold steps are taken to attract sustainable foreign capital and close the gap between official and parallel markets, the naira depreciation trend may continue to rear its head, just when it seems the currency is stabilizing.
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