After Weeks of Sustained Accretion, Foreign Reserves Drops to $42.41 Billion

·       Analyst predicts rebound in short time

James Emejo in Abuja

After weeks of steady rise, the country’s Gross Foreign Exchange Reserves dropped to $42.41 billion on October 2, 2025 compared to $43.05 billion on September 11.

On August 21, the reserves peaked at $41.05 billion, the highest level in over 44 months, demonstrating the continued improvement in macroeconomic indices in recent times.

The upward trajectory had continued through September before the latest decline, according to the Movement in Reserves, obtained from the CBN website.

Analysts are, however, of the opinion that economic fundamentals remained strong as the reserves could bounce back from decline in a short period of time.

Essentially, FX reserve movements are particularly crucial for economic stability, currency strength, import capacity, debt management, and overall investor confidence. Changes in the reserves could signal economic stress or health.

Amid huge debt service obligations, and revenue challenges, the stability in external reserves movement, coupled with a marked deceleration in inflation rate as well as Naira’s relative stability offer renewed hope for the country about better days ahead.

The development further attests to the position of the central bank’s management team that monetary policy actions have so far headed in the right direction.

During the last MPC meeting in September, Cardoso had attested to the sustained stability in the foreign exchange market, accentuated by improved capital flows, earnings from increased crude oil production, rising non-oil exports and significant reduction in aggregate imports.

He said, “The MPC expressed satisfaction with the prevailing macroeconomic stability, evidenced by the improvements in several indicators. These include the sustained disinflation, improved output growth, stable exchange rate and robust external reserves.

“It particularly noted the increased momentum of disinflation in August 2025, being the highest in the past five months. This deceleration, underpinned by monetary policy tightening, exchange rate stability, increased capital inflows, and surplus current account balance, have helped to broadly anchor inflation expectations.

“Other factors that contributed to the deceleration include the continued moderation in the price of Premium Motor Spirit (PMS) and the notable increase in crude oil production. In the view of the Committee, the stability in the macroeconomic environment offered some headroom for monetary policy to support economic recovery.”

Notwithstanding the consistent deceleration in inflation, the Committee observed the persistent build-up of excess liquidity in the banking system, resulting largely from fiscal releases emerging from improved revenues. Being mindful of the need to preserve the prevailing macroeconomic stability, the MPC noted the risk posed by excess liquidity in the banking system.

Members noted that effective functioning of the interbank market remains critical to enhanced transmission of monetary policy. This, therefore, informed the decision to adjust the width of the standing facilities corridor to boost interbank market transactions and enhance the stability of the market.

The Committee acknowledged the continued stability of the foreign exchange market and its critical importance in achieving rapid disinflation, and therefore called on the Bank to continue the implementation of policies that would further boost capital inflows and deepen foreign exchange liquidity.

On the financial sector, the MPC noted the continued resilience of the banking system, with most of the financial soundness indicators remaining within their respective prudential benchmarks. Members also acknowledged the significant progress in the ongoing bank

However, despite the 1.48 per cent decline in external reserves, analysts believed development further attests to the position of the central bank’s management team that monetary policy actions have so far headed in the right direction.

They believed that the drop was only temporary, and could be attributed to payments on obligations due either for interest and principal repayment on loans or bilateral or multilateral obligations.

Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, added that bond obligations due for payment could also be the source of the reduction in foreign reserves.

He said, “The balance of trade deficit could also be the cause of the reduction whilst not ruling out reduction in FDIs or Diaspora remittances during the period under review.”

Gbolade added, “However, the country’s economy has strong fundamentals to bounce back from the decline in a short period of time.”