The naira depreciated by 1.3 percent in March to close at N1,387 per dollar, reversing earlier gains, as foreign exchange liquidity tightened amid weakening capital inflows. Analysts at Quest Merchant Bank attributed the decline to reduced offshore investor participation, driven by global risk aversion linked to the ongoing Middle East conflict. "The naira came under renewed pressure due to tight FX liquidity resulting from dwindling offshore investor inflows," the analysts said, noting that foreign investors have adopted a wait-and-see stance. The Central Bank of Nigeria (CBN) maintained interventions in the FX market to stabilise the currency, but gross official reserves fell by $455 million to $49.2 billion, the first drop since June 2025. Quest analysts linked the decline to debt service obligations and the CBN's market support activities. Domestic demand for foreign exchange also rose, fuelled by a rebound in imports and increased safe-haven demand for the US dollar. The Dollar Index climbed to 99.8 in March from 97.6 in February. On the parallel market, the naira weakened further, depreciating 4 percent to N1,426 per dollar. Quest Merchant Bank projects continued tight FX liquidity in the near term, citing persistent global uncertainty and subdued capital inflows.
The CBN's growing reliance on reserve sales to prop up the naira reveals a narrowing policy buffer at a time of rising external pressures. With reserves dropping by $455 million in one month and the Middle East conflict deterring investor return, Nigeria's ability to sustain currency stability without deeper structural reforms is increasingly questionable. This dynamic puts more strain on domestic liquidity and could limit the central bank's room to respond to future shocks. For Nigerians, that translates to prolonged FX scarcity and continued pressure on prices.
