The Nigerian naira strengthened against the US dollar at the official foreign exchange market as banking-system liquidity rose to ₦7.37 trillion, drawing attention to changing conditions in the country’s financial sector.
The latest market developments show increased cash availability among banks, alongside reported intervention by the Central Bank of Nigeria (CBN) to improve dollar supply.
According to a market update by investment firm Cowry Asset Limited, Nigeria’s excess banking-system liquidity increased to ₦7.37 trillion from ₦6.94 trillion recorded the previous week.
The increase was largely supported by maturities of Open Market Operations (OMO) instruments, which returned funds to the banking system.
The development came despite a ₦71.16 billion settlement for the Nigerian Treasury bills auction during the week.
Why Banking Liquidity Increased
OMO instruments are securities issued by the CBN to manage the amount of money circulating within the financial system.
When these instruments mature, funds are returned to investors, including banks. This can increase the amount of cash available in the banking system.
Cowry Asset Limited attributed much of the latest liquidity increase to these OMO maturities.
However, the CBN continued efforts to manage excess funds through its own market operations.
At its latest reported OMO auction, the apex bank offered ₦1 trillion in 124-day and 138-day instruments.
Investors submitted bids worth ₦2.28 trillion, but the CBN allotted only ₦244.94 billion.
This suggests strong investor demand for short-term government-backed instruments, while the relatively low allotment limited the amount of excess cash withdrawn through the auction.
What Is Happening to the Naira?
The naira also recorded gains at the official foreign exchange market towards the end of October.
Data published by the CBN showed that the Nigerian Foreign Exchange Market (NFEM) rate stood at ₦1,346.26 per dollar on October 30, compared with ₦1,367.61 on October 26.
The improvement followed a reported $500 million foreign exchange intervention by the CBN through authorised dealers.
Nigeria’s external reserves also increased marginally to $55.26 billion, according to the market report.
However, the naira’s performance was not the same across all markets. The currency reportedly weakened by 0.47 per cent in the parallel market, where it traded around ₦1,369 per dollar.
This difference shows why developments in the official market should not automatically be interpreted as a uniform improvement across the foreign exchange market.
Does Higher Banking Liquidity Mean a Stronger Naira?
Not necessarily.
Higher banking liquidity means more naira funds are available within the financial system. But the exchange rate also depends on the availability of foreign currency, demand for dollars, capital inflows, oil receipts and confidence in the economy.
If excess naira liquidity grows faster than the supply of foreign exchange, it could increase pressure on the currency.
This is why the CBN continues to use monetary policy tools, including OMO auctions, to manage excess funds and support price and exchange-rate stability.
What Nigerians Should Watch Next
The coming weeks will provide a clearer picture of whether the recent developments can be sustained.
Market watchers will be monitoring:
- CBN interventions: Whether the apex bank continues supplying foreign exchange to authorised dealers.
- External reserves: Whether Nigeria can maintain or improve its foreign reserve position.
- Banking liquidity: Whether the ₦7.37 trillion surplus continues to rise or is reduced through further CBN operations.
- Exchange-rate stability: Whether the naira maintains its gains at the official market and whether the gap between official and parallel-market rates narrows.
For businesses, importers and Nigerians who depend on foreign exchange, sustained improvements in dollar availability could help reduce uncertainty around currency costs.
However, the latest figures do not yet establish a lasting recovery.
The key question is whether increased financial-system liquidity and improved foreign exchange supply can translate into more stable exchange rates and better economic conditions for businesses and households.
