Foreign investors are adopting a cautious approach towards new investments in Nigeria, citing concerns over the stability of the naira. An anticipated inflow of approximately $700 million has been put on hold as investors grow wary of potential losses due to the naira's volatile performance.
A source familiar with the matter revealed that foreign investors, initially optimistic about the exchange rate, are now facing mark-to-market losses on the currency. With apprehension mounting, investors are activating stop-loss measures and reversing their inflows, citing inadequate liquidity to support their positions.
The recent surge in foreign exchange inflows, totaling over a billion dollars, followed the Central Bank of Nigeria's implementation of long-awaited reforms in the market. These reforms aimed at fostering transparency in dollar pricing and increasing interest rates on treasury bills helped stabilize the naira temporarily. However, the currency resumed its downward trajectory last week, hitting a new low against the US dollar.
The renewed depreciation of the naira has sparked concerns among investors, prompting calls for proactive measures to mitigate risks and restore confidence in the market. Suggestions include reinstating Non-Deliverable Forward contracts for foreign investors and enhancing liquidity through consistent intervention by the Central Bank.
While the Central Bank has resumed dollar sales in the spot market after a hiatus, analysts note that the volume of sales remains insufficient to address market dynamics adequately. Investors emphasize the need for a sustained increase in supply to stabilize the currency and attract new inflows.
Market analysts anticipate a possible hike in benchmark interest rates during the upcoming Monetary Policy Committee meeting to curb inflationary pressures. However, questions persist regarding the effectiveness of monetary policies in addressing the underlying challenges facing the naira.
Against this backdrop, foreign investors seek clarity on Nigeria's economic outlook and policy direction. An upcoming foreign portfolio investor call with CBN governor Cardoso aims to address investor concerns and foster a conducive environment for investment.
While acknowledging positive strides by the Central Bank, stakeholders emphasize the importance of coordinated efforts to instill confidence and attract much-needed foreign investment. The path to stabilizing the naira requires a multifaceted approach, including policy coordination, enhanced liquidity, and investor engagement.
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