Naira Under Pressure As Foreign Investors Pull Out Of Nigeria

The Nigerian naira came under renewed pressure in the foreign exchange market as foreign portfolio investors (FPIs) accelerated their exit from local assets, triggering a sharp spike in demand for the U.S. dollar. 

Amid this surge, the Central Bank of Nigeria (CBN) intervened with a $124 million injection to bolster supply. However, the move fell short of calming the market, as heightened dollar demand pushed the naira further down across major trading windows.

At the official Nigerian Foreign Exchange Market (NFEM) window, the naira depreciated by 1.94%, closing at N1,600 per dollar. Similarly, it weakened by 1.96% to N1,631.90 at the FMDQ FX window, according to a report by investment banking firm CardinalStone Partners Limited.

“This was a result of persistent demand pressure arising from Foreign Portfolio Investors seeking to exit the market due to global risk-off sentiments,” CardinalStone analysts noted.

To counteract the pressure, the CBN participated in interbank trades, selling $124 million at rates between N1,595 and N1,610 per dollar. However, the intervention coincided with concerns over the country’s dwindling external reserves.

Despite these challenges, CardinalStone noted that Nigeria may still retain some level of foreign investor interest. JP Morgan, for instance, has indicated plans to reinvest proceeds from maturing Nigerian Treasury Bill (NTB) positions into more lucrative Open Market Operation (OMO) instruments.

“We also expect the CBN to keep OMO rates higher for longer amidst the increasing risk to the external position, principally occasioned by a weaker oil price outlook,” the firm added.

Analysts believe the recent release of Nigeria’s net foreign exchange reserves—standing at $23.30 billion as of 2024, compared to $4.00 billion in 2023—could help stabilize investor sentiment.

These net reserves provide an estimated 7.3 months of import cover for goods and 5.0 months for goods and services, both exceeding the International Monetary Fund’s (IMF) benchmark of three months. By comparison, gross reserves offer 12.0 months and 8.2 months of import cover, respectively.

SOURCE: BizWatchNigeria.Ng