The naira experienced a slight depreciation against the US dollar last week, declining by 0.32 percent week-on-week to close at N1,375.46 per dollar in the official market. This occurred even as Nigeria's external reserves increased to $48.72 billion, highlighting a complex interplay between sustained foreign exchange demand pressures and modest reserve accumulation.
Parallel Market Performance
In the parallel market, the currency also weakened marginally by 15 basis points to N1,370 per dollar, indicating a broad convergence between both segments of the foreign exchange market despite ongoing liquidity constraints. The movement in the FX market underscores the persistent tension between demand-side pressures and policy-driven efforts to stabilize the naira.
Monetary Policy Impact
While recent monetary tightening measures by the Central Bank of Nigeria (CBN) have helped to curb extreme volatility, market participants continue to grapple with a landscape shaped by intermittent dollar inflows, import-related demand, and shifting investor sentiment. The marginal improvement in external reserves to $48.72 billion, though modest at 0.05 percent week-on-week, provides some reassurance of underlying external sector stability and offers a buffer that could support the currency in the near term.
Crude Oil Prices
Nigeria's Bonny Light crude declined by 5.99 percent to $116.92 per barrel. This drop highlights the impact of grade-specific pricing dynamics and differentiated demand conditions in the international crude market, even amid broader gains in global oil benchmarks.
Market Outlook
Looking ahead, analysts expect the naira to remain under mild pressure in the near term, driven by persistent foreign exchange demand and structural liquidity constraints in the domestic FX market. However, the gradual build-up in external reserves is expected to provide some cushioning effect, helping to dampen sharp volatility even as broader macroeconomic uncertainties continue to shape market direction.
Bond Market Performance
Meanwhile, the Nigerian secondary bond market traded on a bearish note throughout the week, reflecting sustained pressure from weak investor demand and widespread selloffs across most maturities following the CBN's Monetary Policy Committee (MPC) decision to maintain its current policy stance. As a result of the cautious trading environment and subdued appetite for fixed-income instruments, average yields in the secondary market rose by 17 basis points week-on-week to close at 16.28 percent, underscoring tightening sentiment across the domestic debt space.
Investor Sentiment
Market activity remained largely muted throughout the week as investors adopted a defensive positioning strategy in response to elevated interest rates and persistent liquidity constraints in the financial system. The combination of restrictive monetary conditions and uncertainty around near-term policy direction continued to weigh on demand, particularly for longer-dated instruments, as participants sought higher compensation for perceived risk.
