Nigeria’s foreign exchange (FX) market recorded a significant improvement in liquidity in May with total inflows rising by 62.0 percent month-on-month (m/m) to $5.96 billion, up from $3.67 billion in April.
The sharp increase was driven predominantly by domestic participation, which accounted for 83.2 percent of total inflows, according to data released by FMDQ and referenced in Cordros Securities’ latest macroeconomic update.
The figure marks the highest level of FX inflow recorded in recent months and signals strengthening investor confidence in Nigeria’s reformed market framework, particularly amid ongoing macroeconomic stabilization and a more market-reflective exchange rate.
The contribution of local sources stood at $4.96 billion in May, while foreign sources accounted for $997.6 million, representing 16.8 percent of the total inflows.
The report noted that the jump in domestic inflows reflects improving sentiment from corporates and institutional investors who are increasingly engaging with the liberalized FX window.
Meanwhile, inflows from foreign sources posted a strong 51.7 percent increase from April levels.
The uptick was largely driven by renewed foreign portfolio investment (FPI), which surged 61.3 percent to $880.8 million. Other corporate inflows also rose by 10 percent to $84 million.
However, foreign direct investment (FDI) saw a marginal decline of 6.3 percent to $32.9 million, indicating lingering investor caution on long-term commitments.
The Central Bank of Nigeria (CBN) continued to reduce its intervention in the FX market with official inflows falling to $649.8 million in May from $1.35 billion in April. This aligns with the apex bank’s strategy of allowing market-driven price discovery and deepening FX market transparency through non-interventionist liquidity support.
“Improving macroeconomic fundamentals, such as reduced volatility in the naira and declining inflationary pressures, are contributing to renewed investor interest,” Cordros Securities stated. “In the near term, we anticipate that foreign exchange inflows will continue to improve, supported by growing market confidence.”
Despite the positive momentum, the report flagged ongoing global trade uncertainties and elevated geopolitical risks as downside factors that may limit the scale and consistency of foreign inflows.
“Robust FX liquidity growth may face headwinds from weak external demand, policy risks, and persistent inflationary concerns,” the firm added.
In a related development, the Central Bank’s Purchasing Managers’ Index (PMI) for May sustained its expansionary trajectory for the sixth consecutive month, albeit with a slight moderation.
The composite PMI declined marginally to 52.1 points from 52.2 points in April, indicating continued but moderate growth across key sectors.
The Agriculture sector PMI dropped slightly to 53.4 points from 53.8, while the Industry and Services PMIs came in at 51.6 and 51.7 points, respectively. Analysts attributed the slowdown to seasonal factors, reduced activity in the transport and financial services segments, and tighter financial conditions.
“Nonetheless, we expect the private sector to maintain a positive outlook in the coming months, aided by declining inflation and FX market stability. However, tight credit conditions could weigh on the pace of expansion,” Cordros Securities concluded.
With FX reforms gaining traction and market sentiment improving, attention now shifts to sustained policy consistency, macroeconomic stability, and foreign capital retention strategies as key enablers for long-term growth in Nigeria’s currency market.
