The Nigerian naira weakened against the US dollar across multiple foreign exchange markets as robust demand from foreign investors exceeded the CBN’s interventions.
The exchange rate dropped N24.75 over the previous week, finishing Friday at N1,517.24 to the US dollar. A spike in demand for dollars put tremendous pressure on the official market.
According to a report from CardinalStone Partners Limited, the drop in the naira’s value was driven by profit-taking actions from FPIs and Nigerian businesses, despite the CBN’s dollar sales to banks. Offshore demand remained strong, even after the CBN intervened by selling over $131.7 million—the second-largest single-day sale this year, AIICO Capital Limited stated.
The week began with the naira trading at N1,510 per dollar, but rising demand pushed it to N1,540-N1,560 by the week’s end. Market turnover hit $320 million, although some transactions were yet to be recorded.
Overall, the naira weakened by 1.659% compared to the previous week, falling from N1,492.49/$ to N1,517.24/$. In the parallel market, the exchange rate further depreciated to N1,570 due to growing demand pressures.
The recent depreciation suggests that the exchange rate stability seen in previous months has been disrupted. Analysts believe the currency market’s outlook will depend on the CBN’s willingness to support the naira amid fluctuating foreign exchange inflows.
According to FMDQ data, total inflows into Nigeria’s FX market fell by 12.9% month-on-month to $4.12 billion in February, down from $4.74 billion in January. Cordros Capital Limited attributed this to a decline in both foreign and local inflows. Foreign inflows dropped by 10.5% to $2.07 billion, largely due to a 12.5% reduction in FPI inflows and a 12.3% dip in foreign direct investment (FDI).
On the local front, inflows fell by 15.1% to $2.06 billion due to a 62.5% decline in individual FX inflows and a 36.3% reduction in the CBN’s FX supply. Additionally, exporter/importer inflows fell by 22.5%.
Cordros Capital projects that FX inflows will remain strong in the short term, but declining yields—caused by inflation adjustments—could make Nigeria less attractive for foreign investors, potentially limiting FX inflows.
Despite the recent decline, CardinalStone Partners pointed out that the naira has gained 2.5% so far this year and has been comparatively stable from the start of the year. The research also noted that Nigeria’s settlement of external obligations, notably the return of a $3.5 billion IMF loan obtained in 2020 under the Rapid Financing Instrument (RFI), was partially to blame for the recent currency swings. Nigeria began repaying this loan in 2023, and this year will mark the completion of the last installments.
