The naira depreciated slightly against the dollar in the official foreign exchange (FX) market in May 2026 as trading activity and liquidity slowed across the market. This trend highlighted softer dollar flows despite a rebound in Nigeria’s external reserves.
Data published by the Central Bank of Nigeria (CBN) showed that the naira weakened by N8.00 month-on-month. The dollar was quoted at N1,373.25 at the close of trading on Friday, representing a loss of 0.58 percent compared with the opening rate of N1,365.25 at the Nigerian Foreign Exchange Market (NFEM) window at the beginning of May.
The currency’s decline came even as Nigeria’s external reserves rose sharply during the month, suggesting that stronger reserve buffers were yet to translate into improved market liquidity. Activity across both the interbank and official FX windows slowed, with declines recorded in transaction volumes, turnover, and deal counts.
Weekly fluctuations and volume declines
On a weekly basis, however, the naira strengthened marginally by N2.21 or 0.16 percent from N1,375.46 quoted the previous week. Over the three trading days this week, the local currency also gained N1.67 from N1,374.92 quoted on Monday.
CBN data showed that liquidity through the interbank market weakened in May. The number of deals executed at the interbank segment fell by 15.19 percent to 1,776 transactions from 2,094 deals recorded in April. Interbank turnover also declined significantly to $1.50 billion in May from $1.86 billion in April, representing a drop of 19.35 percent or approximately $360 million.
A similar trend was recorded at the NFEM window. The number of deals declined by 21.17 percent to 4,758 transactions in May, compared with 6,036 deals executed in April. Turnover at the official market also moderated to $8.40 billion in May from $8.51 billion in April, reflecting a decline of 1.29 percent or about $110 million. The NFEM deals and turnover figures for May 29, 2026 were not available as of the time of reporting.
In the parallel market, also known as the black market, the naira posted a stronger performance. The local currency appreciated by N10 month-on-month as the dollar was quoted at N1,385 on Friday compared with N1,395 at the beginning of May.
The improvement in the parallel market helped narrow the gap between the official and unofficial exchange rates. The spread between both markets declined to N12 in May from N26 recorded in April 2026, reflecting continued convergence in exchange rate pricing.
Meanwhile, Nigeria’s external reserves, which provide the CBN with the capacity to support the naira and meet external obligations, rebounded strongly during the month. Data published on the CBN website showed that reserves rose to $49.34 billion as of May 26, 2026, representing an increase of $950 million or 1.96 percent from $48.39 billion recorded on April 27, 2026.
Olayemi Cardoso, governor of the CBN, said gross external reserves stood at $49.49 billion as of May 15, 2026, compared with $48.35 billion at the end of March. According to Cardoso, the reserve position was sufficient to cover 9.04 months of imports of goods and services, providing a strong buffer against external shocks and supporting confidence in the foreign exchange market. He noted that the strong reserve position continues to reinforce investor confidence in the Nigerian economy and support exchange rate stability.
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The reserve accumulation comes as the central bank maintains a tight monetary policy stance aimed at anchoring inflation expectations, attracting foreign portfolio flows, and preserving macroeconomic stability. During the month, the Monetary Policy Committee voted at the conclusion of its 305th meeting to retain all key monetary policy parameters.
The committee left the Monetary Policy Rate unchanged at 26.5 percent, maintained the asymmetric corridor at +50/-450 basis points around the MPR, retained the Cash Reserve Ratio at 45 percent for deposit money banks and 16 percent for merchant banks, and kept the liquidity ratio at 30 percent.
Analysts said the decision reflects the apex bank’s determination to sustain investor confidence, preserve exchange rate stability, and avoid weakening foreign portfolio inflows at a time when major central banks, including the US Federal Reserve, the Bank of England, and the European Central Bank, continue to maintain relatively tight monetary conditions.
Bismarck Rewane, managing director of Financial Derivatives Company, said inflation could rise toward 16.5 percent in the coming months due to heightened geopolitical tensions and elevated energy prices, but maintained that Nigeria’s macroeconomic position has improved significantly.
“Nigeria is in a stronger position to have a stable, predictable and well-managed exchange rate,” Rewane said on CNBC, citing stronger reserves, improved oil prices and ongoing reforms implemented by the current administration and the Central Bank.
The contrasting trends of rising reserves and slowing FX market activity underscore the challenges facing policymakers as they seek to deepen liquidity in the foreign exchange market. While stronger reserve buffers have helped narrow the gap between official and parallel market rates and reinforce confidence in the naira, declining transaction volumes suggest that dollar supply conditions remain softer than headline reserve figures may indicate.