Price Instability and External Reserves in Nigeria

This study examined the effect of price instability on Nigeria’s external reserves over the period 1994–2024. The objectives of the study are to; evaluate the effect of inflation rate, exchange rate fluctuations and oil price on external reserve in Nigeria. Relying on secondary time-series data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin, World Bank Development Indicators (WDI), and International Monetary Fund (IMF) databases, the study adopted the Ordinary Least Square (OLS) techniques. The results revealed that, inflation exerts a negative and statistically significant effect on Nigeria’s external reserves, Conversely, the exchange rate and oil price showed positive and significant effects on external reserves, implying that, moderate exchange rate depreciation and higher oil prices enhance foreign exchange earnings and reserve build-up. The model demonstrated a strong explanatory power with an R-squared value of 0.711, suggesting that about 71% variations in external reserves are explained by the independent variables. The study concluded that, persistent inflation and currency depreciation, if unchecked, threaten external sector stability, while sound monetary and fiscal coordination can strengthen reserve adequacy. Based on the findings, it was recommended amongst others that, policy authorities should prioritize anti-inflationary measures, diversify export structures, and maintain a flexible exchange rate regime supported by robust reserve management to enhance external resilience and ensure long-term economic stability.