Nigeria’s foreign exchange market recorded a significant increase in dollar inflows in October, following a sharp rise in supply from the Central Bank of Nigeria, which helped strengthen liquidity in the official market.
Figures released by the Financial Markets Dealers Association showed that aggregate inflows into the Nigerian Foreign Exchange Market climbed to $8.28 billion in October, representing a 61.7 per cent increase from the $5.12 billion recorded in the preceding month.
Domestic participants accounted for the bulk of the funds entering the market, contributing $5.11 billion, equivalent to 61.7 per cent of total inflows. This represented a substantial increase from the $2.06 billion supplied by local sources in September, translating into month-on-month growth of 148.1 per cent.
The Central Bank emerged as the dominant contributor to the increased domestic supply, with its foreign exchange inflows rising by 421.7 per cent compared with September. The sharp expansion points to a considerable increase in the apex bank’s dollar injections into the official market, amid efforts to improve availability and contain exchange-rate pressures.
Other domestic participants also recorded stronger contributions during the review period. Foreign exchange inflows from individuals increased by 74.0 per cent, while contributions from exporters and importers advanced by 71.5 per cent. Non-bank corporate entities equally strengthened their participation, posting a 55.5 per cent increase in dollar inflows.
The performance indicates that the improvement in domestic foreign exchange supply extended beyond the CBN, although the apex bank remained the principal force behind October’s expansion.
In contrast, funds received from international sources recorded relatively moderate growth. Gross foreign exchange inflows from overseas investors and other external sources stood at $3.17 billion in October, up 3.5 per cent from the $3.06 billion registered in September.
Foreign contributions represented 38.3 per cent of total market inflows, considerably below the share accounted for by domestic participants.
However, the increase in gross foreign receipts did not translate into a positive net foreign exchange position. Data showed that the NFEM experienced net foreign outflows of $1.41 billion during October, reversing the $1.03 billion net inflow recorded in September.
The reversal suggests that foreign exchange withdrawals exceeded fresh foreign funds entering the market during the month, potentially placing additional pressure on the balance between dollar demand and supply.
Consequently, the CBN’s increased participation appears to have played an important role in supporting overall market liquidity and cushioning the impact of unfavourable movements in net foreign flows.
Despite the outflow recorded in October, expectations remain that foreign exchange availability could stay relatively strong in the short term, provided international investors maintain their interest in Nigerian financial assets.
The attractiveness of naira-denominated investments remains an important factor supporting portfolio participation, particularly as yields, despite recent declines, continue to offer potentially appealing returns to foreign investors.
Nevertheless, uncertainties in the global economic and political environment could influence the direction of foreign capital movements. Geopolitical tensions and shifts in international investment sentiment remain potential sources of volatility, with the capacity to disrupt the consistency of foreign exchange inflows into Nigeria.
Against this backdrop, the CBN is expected to maintain a measured presence in the official foreign exchange market, deploying interventions when necessary to address temporary mismatches between dollar demand and available supply.
Such measures could help reduce pressure on the naira, improve market liquidity and minimise excessive exchange-rate fluctuations.
Overall, October’s figures point to a stronger foreign exchange supply position, largely attributable to increased intervention by the CBN and improved contributions from other domestic sources. However, the return to net foreign outflows highlights the importance of attracting more sustainable private-sector investments and strengthening foreign investor confidence.
Maintaining a stable and liquid foreign exchange market will therefore depend not only on the apex bank’s interventions but also on the ability of the economy to generate consistent inflows from exporters, businesses and international investors.
