On 5 November 2026, the naira closed at N1,350.45 per dollar on the Nigerian foreign exchange market, N4.44 weaker than the N1,346.01 close recorded on 2 November, according to Central Bank of Nigeria data reported by Nairametrics. Interbank turnover that day was about $82 million, down from about $101 million in the prior session.
A soft week for the naira is not unusual. What stands out is that the CBN's own publication has outlined a mechanism consistent with the observed moves. A paper in the CBN Journal of Applied Statistics, "Budget Deficit Dynamics and Macroeconomic Performance in Nigeria" by Ndubuisi E. Uguru, uses annual data from 1981 to 2024. ThisDay summarised the findings on 6 November.
The study concludes that budget deficits are a primary driver of exchange-rate depreciation. They account for a large share of short-run currency movements and keep exerting downward pressure on the currency over time. Deficits also place delayed upward pressure on interest rates, and money supply can contract when the central bank tightens to contain the fallout from government borrowing.
The paper finds no statistically significant direct link between deficits and inflation. Under its framework, Nigeria's inflation tracks supply shocks, structural bottlenecks, and pass-through from a weaker naira into domestic prices. The fiscal problem appears first in the exchange rate and the cost of money, then in prices through the currency.
That pattern is described as fiscal dominance: government financing needs constrain how freely the central bank can pursue monetary stability on its own.
The relevance became clear in the first week of November. Gross external reserves rose by only $295.35 million in October 2026, the slowest positive monthly increase so far this year, according to Nairametrics. Net foreign exchange reserves reached a record $46 billion, up from $34.80 billion at the end of 2025. The buffer is larger, yet the naira still slipped.
Reserves provide support but do not cancel a persistent deficit that competes for dollars and domestic credit. When the government borrows heavily at home, private borrowers face higher rates. When the deficit feeds depreciation fears, importers and portfolio managers bid for dollars. Both channels were visible in the same week: a weaker official rate and a harder path to lowering the Monetary Policy Rate.
