Dollar Inflows Surge to $3 Billion in January, Boosting Hopes for Nigerian Interest Rate Cut
Nigeria may be on the verge of easing its high interest rates as improved foreign exchange (FX) liquidity strengthens investor confidence and stabilizes local markets, according to Quest Merchant Bank. The financial institution highlighted in a note to Daily Sun that January’s FX inflows into Nigeria surged to $3 billion, marking a 7% month-on-month increase and the second consecutive rise since December 2025.
The rebound in FX supply has been largely fueled by offshore investors attracted to Nigeria’s elevated interest rate environment, which offers competitive returns compared to global markets. Portfolio inflows, in particular, more than doubled—jumping 151% month-on-month to $1.6 billion—with nearly all funds directed into domestic fixed-income instruments. This trend underscores sustained confidence in Nigeria’s yield landscape and ongoing reforms in the FX market.
While equities saw more modest inflows of $38.7 million, reflecting a cautious investor approach, international corporate inflows rose by 83% to $155.4 million, bolstering market liquidity. Conversely, foreign direct investment (FDI) remained subdued at $50.3 million, signaling continued caution among long-term investors. Analysts note that the preference for low-risk assets highlights how investors are balancing opportunity with macroeconomic uncertainty.
On the domestic side, stronger foreign participation has reduced reliance on the Central Bank of Nigeria (CBN) for FX intervention. The CBN’s supply contribution dropped to $34 million from $654 million the previous month. Meanwhile, export proceeds and inflows from local non-bank corporates remained significant, though individual remittances declined, reflecting shifts in the structure of Nigeria’s FX market toward offshore-driven liquidity.
Quest Merchant Bank and market analysts agree that as FX liquidity improves and exchange rate volatility eases, policymakers may gain more flexibility to cautiously lower interest rates without discouraging foreign investment. Any future easing, however, is expected to be gradual and data-driven, balancing economic growth objectives with the need to maintain external stability and sustained investor confidence.
source: The Sun