Naira Slips Again Despite Bigger Reserves Talk

Naira weakened again this week, even though Nigeria's foreign reserves are now at a 13-year high. That contrast is what everyone is talking about.

This report is based on Nairametrics article "Bigger reserves, weaker naira - CBN research points to Nigeria's deficit problem" published Nov 7, 2026, and the CBN Journal study it cites.

The latest exchange rate move reported

This week, naira fell on both markets.

• At the official window (NFEM), naira slipped by ₦6.13 to close at ₦1,355.37 per dollar - about 0.5% drop for the day.
• In the parallel market (black market), it was worse. It fell from ₦1,358 to ₦1,400 per dollar - ₦42 loss, about 3% in one day.

That is strange because CBN Governor Olayemi Cardoso just announced at the end of 304th MPC meeting that gross reserves hit $50.45 billion - highest in 13 years. By Oct 28, Nairametrics reports reserves even reached $55.26 billion, with net reserves at record $46 billion.

Normally, when reserves rise, naira should get stronger. Reserves are like your savings account - more dollars in CBN means CBN can supply dollars and defend naira. CBN said reserves now give 9.68 months of import cover - above the 6-month comfort level. It is expected to rise to $51.04 billion in 2026.

Oil also helped. Bonny Light crude is at $115 per barrel as of early Nov, and production is back to 1.53 million barrels per day (1.7m with condensates). So more oil dollars.

But despite that, naira still fell. Nairametrics noted official rate around ₦1,346/ $ early last week, now ₦1,355/$, while parallel is ₦1,380-₦1,400/$. Gap is about ₦45 - not huge, but widening.

The simple reason analysts are discussing deficits

This is where the CBN research comes in.

A new study published in CBN Journal of Applied Statistics titled "Budget Deficit Dynamics and Macroeconomic Performance in Nigeria" by Ndubuisi E. Uguru looked at data from 1981 to 2024 - 44 years.

It used a VAR model and found:

Budget deficits are a primary driver of naira depreciation. The study says deficits account for substantial share of exchange rate fluctuations immediately, and trigger sustained decline over time.

In simple English: When federal government spends much more than it earns (deficit), it borrows heavily. That borrowing creates pressure. Government needs naira and dollars to fund budget. It competes with private sector for same money. CBN then has to tighten money to protect naira, which causes contraction in money supply and pushes interest rates up later.

So even if reserves are $55bn, if deficit is ₦23.85 trillion proposed in Dec 2025 budget, later raised to ₦29.20 trillion by April 2026 due to expanded budget, the market knows government will borrow more - domestic and foreign. That expectation alone weakens naira.

Study calls this fiscal dominance - when government borrowing pressure limits what CBN can do with monetary policy.

Interesting finding: Study found no direct link between deficit and inflation - it says inflation in Nigeria comes more from supply shocks, structural bottlenecks, and exchange rate pass-through, not just deficit. But deficit still hurts naira.

Study recommends a binding fiscal rule - a law that sets legal limit on deficit relative to GDP, plus a non-oil Fiscal Stabilisation Fund and better reserve management.

What ordinary Nigerians watch next

3 things:

1. Will deficit shrink? If 2027 budget continues at ₦29trn borrowing, naira pressure remains even with high reserves. Watch what National Assembly approves.

2. Where are reserves coming from? Nairametrics analysis says reserves growth comes from four things: improved current-account surplus ($13.9bn or 4.8% of GDP in 2025, $7.54bn in Q2 2026 per CBN/IMF), remittances ($5.82bn personal transfers in Q2 2026), foreign portfolio inflows ($6bn net OMO purchases by foreigners in 2025) and Eurobond ($2.3bn). If oil price drops from $115, or foreign investors exit OMO, reserves could drop quickly.

3. Parallel market gap: If official stays at ₦1,355 and black goes to ₦1,400+, that gap signals corporate demand outpacing supply, or sentiment that reserves are not sustainable. If gap widens above ₦100, CBN may need to intervene more.

For small business importing goods, higher naira at ₦1,400 means your goods cost more. For students paying school fees abroad, you need more naira. So even talk of $55bn reserves doesn't help your pocket if naira keeps slipping.