Onome Amuge
Nigeria’s foreign exchange (FX) buffers have climbed to their strongest level in nearly four years, buoyed by rising remittances and improved investor sentiment, offering policymakers fresh ammunition in efforts to stabilise the volatile naira.
Official data from the Central Bank of Nigeria (CBN) show reserves rose for a tenth consecutive week to $41.66 billion as of September 11, a 12 per cent gain over the past quarter and the highest since November 2021. The build-up reflects not only firmer diaspora inflows but also improving portfolio flows into local debt markets as expectations grow of a dovish shift in global monetary policy.
The stronger reserves position comes at a critical time for Africa’s most populous nation, which has faced repeated bouts of currency weakness since the unification of its multiple exchange rates in mid-2023. The naira, which plummeted to record lows earlier this year, has since recovered some ground. At the Nigerian Autonomous Foreign Exchange Market (NAFEM), the official window, the currency traded at N1,501.49 per US dollar this week, its firmest level since March.
In parallel trading, often seen as a barometer of market confidence, the naira has also strengthened, fetching N1,510 per dollar on average, narrowing the once wide gap with the official rate. Forwards contracts show signs of optimism, with one-year naira futures appreciating 5.6 per cent to N1,814.93/$ as traders bet on sustained inflows.
CBN governor Olayemi Cardoso credited much of the turnaround to Nigerians abroad, who have stepped up transfers back home. According to him, monthly remittance inflows have climbed from about $250 million earlier in the year to $600 million, with projections of hitting $1 billion a month in 2026.
“By next year, we project that there will be a billion dollars a month of diaspora remittances,” Cardoso said recently, highlighting reforms aimed at easing transaction channels and improving transparency in the remittance market.
Analysts say the surge is timely, providing Nigeria with an alternative cushion against oil price volatility, long the dominant determinant of external liquidity. Cowry Asset Management described the reserves build-up as a critical buffer against external vulnerabilities,adding that it enhances the CBN’s capacity to smooth volatility through targeted interventions in the FX market.
Nigeria’s improved external profile has coincided with a rebound in investor confidence. Foreign portfolio inflows have picked up in anticipation of an expected rate cut by the US Federal Reserve next week, which could spark renewed appetite for high-yielding frontier-market assets. Analysts at Cordros Research noted that easing global yields could further benefit naira-denominated instruments, reinforcing stability in the FX market.
“The anticipated capital inflows should benefit from the expected Fed rate cut and broader easing in global yields. At the same time, stronger non-oil export receipts and reduced incentives for speculative positioning should reinforce the positive momentum and suggest a more balanced forex market outlook,” Cordros said.
Still,analysts observed that challenges remain. Nigeria’s reserves, while improved, are only marginally above the International Monetary Fund’s recommended adequacy threshold for a country of its size. Analysts warn that external buffers could come under pressure again if oil exports falter, global risk appetite wanes, or speculative demand for dollars accelerates toward the year-end festive period.
The naira’s recent appreciation, at less than 1 per cent week-on-week in official trading and 1.85 per cent in the parallel market, also indicates how fragile the gains are.
