By David Akinmola
FOREIGN exchange market turnover declined sharply by 46.57 per cent to $1.63 billion in the second week of July, reflecting weaker trading activity and cautious market sentiment despite sustained reforms by the Central Bank of Nigeria (CBN) to improve liquidity and stability in the foreign exchange market.
The sharp drop in turnover, compared with the previous week’s performance, comes as investors continue to assess evolving macroeconomic conditions, global market developments and the impact of the CBN’s monetary and foreign exchange policies on liquidity and exchange rate stability.
Latest market data showed that total foreign exchange transactions fell to $1.63 billion during the review period from about $3.05 billion recorded a week earlier, underscoring a slowdown in market activity even as the naira continued to trade within a relatively stable range across the Nigerian Foreign Exchange Market (NFEM).
Analysts said the decline in turnover does not necessarily signal renewed pressure on the naira but reflects lower demand and supply activities as market participants adopt a cautious approach amid prevailing domestic and global economic uncertainties.
They noted that since the liberalisation of the foreign exchange market, turnover has remained sensitive to fluctuations in foreign portfolio inflows, corporate demand for foreign exchange, offshore investor participation and interventions by the monetary authorities.
According to the analysts, sustained liquidity remains critical to preserving confidence in the foreign exchange market, attracting foreign capital and supporting exchange rate stability.
They added that although the CBN’s reforms have significantly improved transparency in price discovery and narrowed distortions between the official and parallel markets, deeper liquidity would be required to support growing demand from manufacturers, importers and foreign investors.
Market operators also observed that the moderation in trading volumes may reflect seasonal factors and portfolio rebalancing by institutional investors, stressing that the medium-term outlook for the foreign exchange market would depend largely on sustained foreign capital inflows, improved oil receipts and stronger external reserves.
Economic analysts said Nigeria’s improving macroeconomic fundamentals, including moderating inflation, increased oil production and renewed investor confidence, could support a rebound in foreign exchange turnover in the coming months if current reforms are sustained.
They, however, cautioned that external risks, including global financial market volatility, geopolitical tensions and fluctuations in crude oil prices, remain key factors that could influence foreign exchange inflows and overall market liquidity.
The development comes as the CBN continues to implement measures aimed at deepening the foreign exchange market, improving transparency and restoring investor confidence, with market participants expecting further reforms to enhance liquidity and support long-term exchange rate stability.
