Naira Slides Amid Tight Forex Liquidity and Sluggish Year-End Dollar Inflows

Currency traders have attributed the recent depreciation of the naira to persistent liquidity challenges in the foreign exchange market, compounded by increased demand and weak seasonal inflows.

Market operators explained that some foreign investors are repatriating dividends, while others remain cautious about committing new capital, contributing to tight dollar supply. Speculative activity and the continued preference of some Nigerians to hold foreign currency as a store of value have also intensified pressure on the naira.

The naira ended the trading week weaker, closing at N1,466.5 to the dollar at the official market, compared with N1,454 earlier in the week. This marked the weakest level in nearly two months and signaled renewed volatility after a period of relative stability.

Central bank data showed that the naira declined against the dollar and other major currencies for five consecutive trading sessions, coinciding with a drop in external reserves, which fell from $45.47 billion to $45.21 billion within the same period.

Operators in the bureau de change segment said foreign exchange inflows typically associated with year-end travel and diaspora visits have been below expectations. They noted that much of the available inflow is being routed through informal and electronic channels, reducing its impact on street-level liquidity.

Traders also cited increased dollar demand arising from year-end obligations, import payments, and speculative positioning. While some inflows linked to festive travel are beginning to surface, operators said volumes remain insufficient to offset demand pressures.

In response, the central bank recently injected $150 million into the foreign exchange market to ease liquidity constraints. Market participants also expressed optimism that the licensing of additional bureau de change operators would improve dollar availability at the retail level and help stabilise the market in the coming weeks.