Is the Naira in Trouble as Dollar Inflow to NFEM Drops to $3.2 Billion?

Nigeria’s currency is once again facing a familiar test as dollar inflows into the Nigerian Foreign Exchange Market (NFEM) fell to $3.18 billion in September, a 5.7% decline from $3.37 billion recorded in August. 

This drop has sparked fresh debate about whether the naira could come under renewed pressure, even as the country’s external reserves continue to rise.

Dollar Supply Falls, But Foreign Investors Stay Active

According to data from Cordros Capital Limited, the main reason for the drop in inflows is a steep decline from local sources, including the Central Bank of Nigeria (CBN), exporters, and non-bank corporates.

Figures from FMDQ show that local inflows plunged by 32.4% month-on-month, from $2.10 billion in August to $1.42 billion in September. 

The CBN’s foreign exchange supply fell by 54.4%, while non-bank corporates supplied 48.4% less dollars. Even exporters reduced their dollar inflows by about 3.2%.

However, there was a silver lining, individual inflows nearly doubled, jumping by 97.3%. This increase is linked to stronger diaspora remittances and personal transfers, showing that Nigerians abroad are sending more money home.

Foreign inflows also rose sharply by 38.9%, climbing from $1.26 billion in August to $1.75 billion in September, driven by Foreign Direct Investments (FDIs) and Foreign Portfolio Investors (FPIs). 

Analysts noted that foreign investors remain attracted to Nigeria’s high-yield environment and improved policy transparency.

Naira Holds Firm as CBN Steps In

Despite weaker dollar supply from local players, the naira managed to stay relatively stable. In September, it traded between ₦1,531 and ₦1,522 per dollar, supported by improved liquidity and a $150 million CBN intervention.

To manage inflation and excess demand, the CBN also introduced a 75% Cash Reserve Ratio (CRR) on non-TSA deposits. This move reduced the amount of naira in circulation, helping to support the currency.

As a result, the naira appreciated by about ₦44.57, or 2.91% month-on-month, closing stronger than in August.

Reserves Rise, Giving the Naira Some Breathing Room

Interestingly, while dollar inflows declined, Nigeria’s external reserves grew by $1.08 billion, reaching $42.35 billion. This increase provides a stronger cushion for the country to defend its currency and meet import and foreign exchange obligations.

Financial analysts believe this growth in reserves is a key reason the naira has not weakened further. According to economist Osas Igho, there’s no immediate cause for alarm:

“The reserves are strong enough to support months of imports and FX withdrawals. The naira is still in a fairly stable position.”

Some experts even predict that the naira could end the year around ₦1,400 per dollar, provided that oil earnings remain strong and investor confidence continues.

Banking Sector Turns Cautious

While the foreign exchange data brings mixed signals, there’s growing caution in the banking sector. Credit to the private sector fell by 2.17%, from ₦77.83 trillion to ₦76.14 trillion in June, as banks adopt a more conservative lending approach in response to high interest rates and tight monetary policy.

However, broad money supply (M3) increased by 3.65%, reaching ₦117.50 trillion, supported by a 27.47% rise in net foreign assets, another sign that foreign participation in Nigeria’s financial system remains solid.

What you should know

For now, analysts see the outlook for the naira as cautiously positive. The combination of growing reserves, foreign investor confidence, and steady remittances gives the currency some room to breathe.

However, the drop in local dollar supply remains a concern. If the trend continues, it could increase pressure on the naira, especially if oil prices fall or foreign inflows slow down.

Still, most experts agree that the naira is not in immediate trouble. The government’s fiscal and monetary adjustments from tighter liquidity to market transparency are helping keep the currency stable, at least for now.

In short, while the naira may be walking a tightrope, it hasn’t lost balance yet.