Nigeria’s foreign exchange reserves increased by $295.35 million in October 2026 to $55.22 billion, recording the slowest monthly growth among months that posted positive additions this year.
Data from the Central Bank of Nigeria (CBN) showed that gross external reserves rose from approximately $54.93 billion at the end of September to $55.22 billion on October 30. Although the country has maintained its reserve position above $55 billion, the slower accumulation raises questions about the sustainability of foreign exchange inflows and the cost of attracting foreign capital through high interest rates.
David Olujinmi, an analyst at SBM Intelligence, attributed the slowdown largely to declining yields and reduced issuance of short term government securities, particularly treasury bills. According to him, the development followed a series of monetary policy adjustments, including the reduction in the Monetary Policy Rate (MPR), which contributed to lower interest rates offered on securities issued by the CBN. He explained that the volume of treasury bills issued by the central bank had also declined significantly compared with previous periods.
Olujinmi said the CBN had reduced its issuance of these instruments partly because it was seeking to lower borrowing costs and interest rates in the financial market. These developments have affected foreign portfolio investment, which has been an important source of foreign exchange inflows and reserve accumulation.
High yields attract foreign investors
Despite the recent moderation, Nigeria’s foreign reserves have recorded substantial growth since the beginning of the year. The balance increased by approximately $9.66 billion between January 2 and October 30, rising from $45.57 billion to $55.22 billion. This represents a 21.19 per cent increase within ten months. On a year on year basis, reserves rose by $12.02 billion, representing a 27.84 per cent increase from $43.20 billion at the end of October 2025.
Olujinmi explained that relatively attractive yields on Nigerian treasury bills and other fixed income securities have encouraged foreign portfolio investors to bring capital into the country. He noted that treasury bill yields have ranged between 16 and 17 per cent this year, offering investors higher returns than comparable instruments in several emerging, frontier and developed markets.
According to him, the yield advantage has provided Nigeria with a premium of about four to five percentage points over some competing markets across short and long term securities. This differential has helped attract foreign capital, supporting foreign exchange supply and contributing to reserve growth.
However, the analyst warned that relying on high interest rates to attract foreign investments comes with substantial economic costs. He explained that the government must commit significant resources to servicing debt instruments issued at elevated interest rates, creating pressure on public finances. The resulting cost also raises questions about the balance between maintaining exchange rate stability through foreign portfolio inflows and directing government revenue towards productive investments.
Olujinmi argued that the government faces an opportunity cost when substantial resources are committed to servicing expensive debt rather than funding infrastructure and other capital projects that could improve economic productivity.
Reserve growth does not guarantee naira stability
The slower reserve accumulation also coincided with renewed pressure on the naira in October, following three consecutive months of appreciation.
Data from the Nigerian Foreign Exchange Market showed that the currency weakened from N1,329.50 per dollar at the end of September to N1,346 per dollar on October 30. This represents a depreciation of N16.50 against the dollar during the month. The development highlights the difference between building foreign reserves and achieving lasting exchange rate stability.
Olujinmi noted that Nigeria’s ability to maintain a stable currency remains closely connected to the strength of its external reserves, particularly because the country continues to depend on imported consumer goods. He explained that sufficient reserves are necessary to provide import cover and support the country’s ability to meet external payment obligations.
However, he cautioned that Nigeria’s exposure to external pressures remains significant despite the improvement in its reserve position. He said maintaining reserves around current levels into 2027 would provide a stronger foundation for the government to focus on improving domestic productivity. The analyst recommended that the government moderate interest rates and allocate more resources to capital expenditure, particularly investments that strengthen productive capacity.
For Nigeria, the challenge is therefore not simply to accumulate foreign reserves but to sustain the inflows without creating an excessive debt servicing burden. The October figures suggest that while high yields have helped strengthen the country’s external position, the strategy carries costs that could limit the resources available for long term economic development.
