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Nigeria’s foreign exchange market attracted its strongest inflows in five months in July, with the Central Bank of Nigeria (CBN)’s stepped-up intervention helping lift total supply even as foreign receipts weakened, preliminary FMDQ data revealed at the weekend.
According to the data, total inflows into the Nigerian Foreign Exchange Market (NFEM) rose 31.9 per cent month on month (m/m) to $4.36 billion in July from $3.31 billion in June, driven largely by stronger local inflows.
Local sources accounted for 66.7 per cent of the total and rose 79.8 per cent to $2.91 billion, compared with $1.62 billion in the previous month.
The sharp increase in local inflows was supported by a jump in CBN intervention, which rose 11.8 times from June, alongside higher inflows from non-bank corporates, which increased 31.9 per cent m/m. These gains helped offset declines in inflows from individuals, which fell 54.0 per cent, and exporters, which dropped 12.9 per cent.
Foreign inflows, however, fell 13.9 per cent to $1.45 billion from $1.69 billion in June, reflecting weaker appetite from foreign portfolio investors and other corporates. FPI inflows declined 18.5 per cent m/m, with both equity investment and fixed income receipts contributing to the drop. Equity investment inflows fell 53.2 per cent, while fixed income inflows declined 16.1 per cent.
Other corporate inflows also weakened sharply, dropping 48.4 per cent m/m, although this was partly offset by a surge in foreign direct investment inflows, which jumped 388.3 per cent from a low base.
The data point to a market that remains supported by domestic dollar supply, even as foreign participation shows some caution amid lingering global uncertainty. Sustained central bank intervention has been one of the main factors supporting liquidity in the official market and helping ease pressure on the naira.
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Recent improvements in market confidence and relatively attractive carry trade opportunities have also supported inflows, according to market analysts. Still, geopolitical tensions and broader uncertainty in global financial markets may keep foreign investors selective in the near term.
The latest inflow data come after a period of elevated volatility in Nigeria’s FX market, where the central bank has been working to strengthen liquidity and improve price discovery. Officials have also sought to attract more foreign capital by narrowing market distortions and improving confidence in the official window.
Last week, the naira weakened against the U.S. dollar across the major foreign exchange windows. At the official market, the currency depreciated by 0.45 per cent week-on-week (w/w) to close at N1,368.22/$1 amid local demand pressure from businessmen and investors. At the parallel market, the naira declined by 1.35 per cent to close at N1,387.82/$1.
Meanwhile, Nigeria’s external reserves edged lower by 0.19 per cent w/w to US$51.92 billion, marking the first weekly decline in 3 months and reflecting a slight moderation in the country’s external buffers.
For now, the July figures suggest that policy support and domestic supply are helping shore up the FX market, even if foreign inflows remain uneven.
The challenge for the MPC will be to sustain liquidity without relying too heavily on intervention, while rebuilding a steadier flow of external capital.
