Nigeria’s foreign exchange market saw a significant setback in June 2025, as total dollar inflows dropped to $4.84 billion, a steep 28.1% fall from the $6.74 billion recorded in May. This contraction, reported by Daily Sun using FMDQ data, underscores a growing vulnerability in Nigeria’s foreign exchange (FX) system, driven by sharp declines in dollar contributions from local sources, especially the Central Bank of Nigeria (CBN) and exporters.
According to Cordros Securities, local dollar inflows fell by 61.4% to $2.11 billion, the lowest in four months and now just 43.7% of the total. The CBN reduced its dollar supply by 77.2%, while individuals and exporters slashed theirs by 91.6% and 74.4%, respectively. These significant declines point to weakened domestic confidence in the FX system. Meanwhile, non-bank corporate inflows also slipped, though more modestly, by 17.6%.
In contrast, foreign inflows surged by 116.8% month-on-month, hitting $2.73 billion — the highest level in more than two years. This growth is largely due to increased foreign portfolio investment (FPI), buoyed by attractive interest rates at CBN auctions and cautious optimism surrounding FX market reforms. However, analysts caution that FPIs are volatile and prone to rapid withdrawal during economic uncertainty.
Experts, including David Adonri of Highcap Securities and Johnson Chukwu of Cowry Asset Management, warn that Nigeria’s rising reliance on short-term foreign capital, often called “hot money,” could backfire. If foreign investors sense instability, either domestically or globally, they may quickly exit the market, further weakening the naira and undermining the country’s economic reforms.
As Nigeria continues FX liberalization under CBN Governor Olayemi Cardoso, the central bank is pulling back from direct intervention, expecting market forces to take over. However, analysts stress that unless Nigeria strengthens local FX sources like non-oil exports and remittances, it may face long-term currency instability. While foreign inflows may continue rising in the short term, global uncertainties still threaten the fragile recovery of Nigeria’s FX market.
Source: The sun