By David Akinmola
TRADING activity in Nigeria’s foreign exchange (FX) market weakened significantly in the second week of July as total market turnover plunged by 46.57 per cent to $1.63 billion, raising concerns over declining market liquidity despite sustained reforms by the Central Bank of Nigeria (CBN) to deepen the country’s foreign exchange market.
The sharp decline in turnover, compared with the previous week, reflects weaker demand and supply dynamics across the Nigerian Foreign Exchange Market (NFEM), even as the naira continued to trade within a relatively stable band supported by improved foreign exchange inflows and regulatory interventions.
Market data showed that total FX transactions fell to $1.63 billion during the review period from $3.05 billion recorded in the preceding week, marking one of the steepest weekly declines in market activity in recent months.
Analysts attributed the contraction largely to reduced participation by foreign portfolio investors, lower corporate demand for foreign exchange and cautious positioning by market participants amid prevailing domestic and global economic uncertainties.
They noted that while the drop in turnover points to weaker liquidity conditions, it does not necessarily indicate renewed pressure on the naira, which has remained relatively stable following the CBN’s market liberalisation reforms and increased transparency in the price discovery process.
According to the analysts, sustaining adequate foreign exchange liquidity remains critical to attracting foreign investment, supporting manufacturers and importers, and maintaining confidence in the country’s exchange rate management framework.
They added that consistent FX inflows from oil exports, diaspora remittances and foreign portfolio investments would be required to improve market depth and reverse the slowdown in trading activity.
Market operators observed that the moderation in turnover could also reflect temporary seasonal factors and portfolio rebalancing by investors, expressing optimism that transaction volumes would recover as confidence in Nigeria’s macroeconomic outlook continues to strengthen.
Economic analysts said recent reforms by the CBN, including the unification of exchange rate windows, stricter market surveillance and measures to improve transparency, have significantly enhanced price discovery and narrowed distortions in the foreign exchange market.
However, they stressed that improving liquidity remains the next critical phase of the reform agenda, noting that a deeper and more liquid FX market would strengthen investor confidence, reduce exchange rate volatility and support economic growth.
The analysts also argued that sustained macroeconomic stability, rising external reserves, improved crude oil production and stronger non-oil export earnings would be key to expanding foreign exchange supply and increasing market turnover over the medium term.
The development comes as investors continue to monitor the CBN’s monetary policy direction, global financial market conditions and geopolitical developments, all of which are expected to influence capital flows and liquidity in Nigeria’s foreign exchange market in the months ahead.
