Currency weakens amid offshore investor flight triggered by Iran war, erasing earlier gains as CBN reserves fall to $49.18 billion from 13-year high of $50.45 billion.

The naira weakened to N1,389 per dollar as Nigeria’s external reserves declined by approximately $850 million within three weeks, falling to $49.18 billion between March 11 and April 2, 2026, in a sharp reversal of earlier momentum that had pushed reserves to a 13-year high just weeks earlier, according to data from the Central Bank of Nigeria.

The currency depreciation and reserve drawdown signal sustained pressure on Nigeria’s external position despite recent policy reforms, as escalating geopolitical tensions in the Middle East triggered a flight to safety that drained offshore investor participation from emerging markets, including Nigeria. Quest Merchant Bank analysts said the naira came under renewed pressure due to tight foreign exchange liquidity resulting from dwindling offshore investor inflows, with the Iran conflict triggering pronounced global risk-off sentiment toward African assets.

CBN Governor Olayemi Cardoso had announced in February that reserves reached $50.45 billion as of February 16, 2026, marking the highest level recorded in 13 years and supported by improved inflows and policy reforms. However, the recent $850 million decline has raised concerns among market participants about the sustainability of reserve growth, particularly as persistent interventions and external debt service obligations weigh on the country’s buffers.

The reserve decline for March was the first drop since June 2025, with Business Day reporting that gross official reserves fell by $455 million month-on-month to $49.2 billion. Quest analysts linked the drawdown to a combination of debt service commitments and the CBN’s active intervention in the foreign exchange market to moderate pressure on the naira. The decline occurred over 13 consecutive sessions, reflecting mounting external pressures tied to heightened geopolitical tensions and dampened investor appetite for frontier markets.

In the parallel market, the naira depreciated approximately 4% month-on-month to N1,426 per dollar, pointing to broader underlying foreign exchange pressures. Afreximbank data showed the naira trading at N1,390.2 per dollar in March compared to N1,353.4 in February, though still stronger than the N1,558.7 level recorded a year earlier. The development represents a 1.3% month-on-month depreciation, reversing the relatively stronger performance recorded in the first two months of 2026.

Global currency markets reacted to geopolitical developments, with the US dollar weakening broadly after Donald Trump announced a two-week ceasefire agreement with Iran. The Japanese yen strengthened 0.7% to 158.50 per dollar, while the euro gained 0.7% to $1.1677 and the British pound rose 0.8% to $1.3403. The US dollar index fell to 98.943, its lowest level since March 11.

Looking ahead, Quest Merchant Bank expects Nigeria’s foreign exchange environment to remain fragile in the near term as external uncertainties persist and capital inflows remain subdued. However, analysts noted that the CBN’s continued intervention, supported by relatively strong external buffers, should provide short-term relief, though sustained recovery will depend on the return of foreign inflows and improvement in global risk sentiment.

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