FX buffers rise as offshore inflows lift reserves above $40bn

…Naira outlook looking positive –Analysts

By Chinwendu Obienyi

Nigeria’s foreign exchange reserves rose for the fifth consecutive week to hit $40.16 billion as improved inflows from foreign portfolio investors and the Central Bank of Nigeria’s interventions bolstered the country’s FX buffers, raising hopes for short-term currency stability.

Data from the CBN showed that gross reserves climbed by $800.51 million in the week to August 7, as sustained inflows from the fixed-income market and dollar sales to banks eased immediate liquidity pressures.

This development, according to economic analysts could help the apex bank maintain its current pace of market interventions and keep the naira relatively steady at the official window.

At the Nigeria Foreign Exchange Market (NFEM), the naira closed at N1,535/$1, representing a 1.0 per cent week-on-week (w/w) depreciation. The slight weakening came despite dollar inflows from foreign portfolio investors keen to participate in the CBN’s Open Market Operations (OMO) and a $150 million direct intervention to commercial lenders.

Similarly, the naira lost 0.52 per cent in the parallel market to close at N1,545/$1, as demand from businesses and individuals intensified amid tight FX supply.

In the forwards market, the naira weakened across all tenors, with the one-month contract sliding 0.5 per cent to N1,575.24/$1, the three-month down 1.2 per cent to N1,647.47/$1, the six-month contract losing 2.3 per cent to N1,755.29/$1, and the one-year forward depreciating by 3.9 per cent to N1,960.26/$1.

Global oil market developments also weighed on sentiment. Brent crude futures dropped more than 4 per cent over the week to $66.8 per barrel, while US benchmark West Texas Intermediate fell 4.6 per cent to $64.1 per barrel. Nigeria’s Bonny Light crude declined 3.28 per cent to $70.74 per barrel, pressured by OPEC+’s announcement of an upcoming production increase, slowing global demand, and heightened trade tensions between major economies.

Lower oil prices raise questions over Nigeria’s near-term FX earnings potential, given that crude oil sales account for over 80 per cent of the country’s export revenue. However, analysts believe the CBN’s improved reserves position and continued inflow of portfolio investments could mitigate the impact in the short run.

In an emailed note to Daily Sun, Cordros Research said it remained optimistic on the naira’s prospects, citing expectations of sustained FX liquidity from both foreign and domestic sources.

“Elevated yields, particularly in the OMO market, and a softer US dollar are likely to keep attracting foreign portfolio inflows into the FX market in the near term. Additionally, improved market confidence and limited incentives for naira speculation are expected to reinforce steady inflows,” the investment and research based firm stated.

Cowry Asset Management, while acknowledging potential headwinds from global commodity market volatility, projected that the naira could sustain its marginal gains if the CBN continues to inject liquidity and curb excessive demand. “Although external factors may exert intermittent pressure, we anticipate the naira to hold relatively steady, especially at the official window, barring any major shocks in global commodity or financial markets,” it said.

The CBN has intensified its monetary policy tightening and market interventions in recent months in a bid to attract capital inflows, restore confidence, and narrow the gap between the official and parallel market rates. Inflows from offshore investors into government securities have picked up since mid-year, encouraged by double-digit yields and efforts to improve market transparency.

Market participants say the naira’s trajectory over the coming weeks will hinge on the interplay between global oil price movements, CBN liquidity injections, and foreign investor sentiment. While a sustained slide in oil prices could erode FX inflows from crude exports, the combination of higher interest rates, portfolio inflows, and stable reserves offers some cushion against renewed volatility.