…as structural hurdles keep Naira under pressure
Total FX inflows into the Nigerian market has jumped by 45 percent month-on-month, reaching $4.4 billion in February.
This marks the third consecutive month of increased inflows, a trend largely driven by offshore investors capitalizing on Nigeria’s high-yield environment and positioning the country as an attractive carry trade destination.
Despite a significant boost in foreign exchange inflows, the Nigerian naira continues to face downward pressure, recent data from FMDQ revealed.
The improved liquidity conditions are supported by several key channels. Foreign portfolio inflows rose by 22 percent to $1.9 billion, accounting for roughly 44 percent of total market inflows.
Signaling a more active regulatory stance against demand pressures, the Central Bank of Nigeria increased its FX sales by a massive 859 percent month-on-month, injecting $326.1 million into the market.
Also, total exporter inflows climbed 35 percent to $783 million, with non-oil exports contributing $474 million of that total. Inflows from individual domestic sources also saw a remarkable 314 percent spike, reaching $698 million.
While short-term portfolio flows are thriving due to elevated interest-rate differentials, long-term capital remains highly constrained. Month-on-month, Foreign Direct Investment plummeted by 21 percent to just $39.7 million, and inflows from foreign corporate entities dropped 25 percent to $116.3 million.
Financial analysts note that structural bottlenecks, including policy uncertainty, infrastructure deficits, and security risks, continue to deter sustained long-term investment.
The influx of liquidity was ultimately insufficient to shield the naira from heavy domestic demand, which analysts attribute largely to increased import activities.
At the official window, the currency depreciated by N34.48, or 2.48 percent, in a single session, closing at N1,388.38 per dollar, down from N1,353.90 prior to the public holiday. This pressure extended to the parallel market, where the naira fell by N15, or 1.06 percent, closing at N1,415 per dollar.
Experts at Quest Merchant Bank highlight that global geopolitical tensions, particularly the prolonged conflict in the Middle East, are fostering risk aversion and dampening global appetite for emerging-market assets.
However, they suggest that if these geopolitical tensions de-escalate, Nigeria’s attractive yield environment could help sustain offshore inflows and stabilize the currency in the near term.