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By Chinwendu Obienyi
Nigeria may be edging closer to a phase of gradual monetary policy easing as improving foreign exchange (FX) liquidity strengthens investor confidence and stabilises market conditions, Quest Merchant Bank said in an emailed note to Daily Sun on Thursday.
This is coming after data from the Financial Markets Dealers Quotations (FMDQ) Exchange revealed that total FX inflows into Nigeria rose by 7 per cent month-on-month (m/m) to $3.0 billion at the start of the year, marking the second consecutive monthly improvement since December 2025.
Quest Merchant Bank notes that the rebound in FX supply was largely driven by strong offshore investor participation, supported by Nigeria’s elevated interest rate environment, which continues to offer attractive returns compared to global markets.
The surge in foreign portfolio investments has been particularly notable. Portfolio inflows more than doubled, rising by 151 per cent m/m to $1.6 billion, with about 98 per cent of these funds channelled into Nigeria’s domestic fixed-income market.
According to Quest Merchant Bank, this strong foreign appetite for local debt instruments highlights sustained investor confidence in Nigeria’s yield environment and ongoing FX market reforms.
While foreign investors remain selective, the bank observed that the equities market attracted relatively modest inflows of $38.7 million during the period, reflecting a continued preference for lower-risk fixed-income assets amid lingering macroeconomic uncertainties.
Beyond portfolio flows, inflows from international corporates also recorded significant growth, rising by 83 per cent m/m to $155.4 million, further supporting market liquidity. However, foreign direct investment remains subdued, inching up marginally to $50.3 million, underscoring continued caution among long-term investors.
On the domestic front, Quest Merchant Bank highlighted that stronger foreign participation has reduced the need for Central Bank of Nigeria (CBN) intervention in the FX market. The CBN’s contribution to FX supply dropped sharply to $34 million, compared with $654 million in the previous month, signaling improving market-driven liquidity conditions.
Export proceeds, despite declining by 15 per cent m/m to $582 million, remained the largest domestic source of FX supply. Similarly, inflows from local individuals fell by 39 per cent to $168.7 million, while non-bank corporates recorded a modest increase of 2.4 per cent to $430.4 million, accounting for roughly 14 per cent of total FX inflows.
The bank believes the evolving structure of Nigeria’s FX supply, increasingly anchored on offshore inflows, reinforces expectations of a gradual shift in monetary policy stance.
It said that as FX liquidity improves and exchange rate volatility moderates, policymakers may have greater flexibility to ease interest rates cautiously without undermining Nigeria’s attractiveness to foreign investors.
Nonetheless, analysts emphasized that any easing cycle is likely to be measured and data-dependent, as authorities balance the need to support economic growth with the imperative of maintaining external stability and investor confidence.
“Sustaining strong foreign participation in Nigeria’s fixed-income market will remain critical to preserving FX liquidity gains and ensuring a smooth transition toward a more accommodative monetary policy environment”, they said.
