The Naira exchange rate has came under intense pressure in the foreign exchange market as a result of foreign investors seeking to exit positions in the economy in droves. The market saw a significant spike in US dollar demand, and this pushed the exchange rate line amidst a global shift in investment perceptions. Reacting to increased demand for hard currency, the Central Bank of Nigeria (CBN) flooded the FX market with $124 million to boost the supply side, but this proved to be insufficient to stem the negative tide on the exchange rate. The official rate depreciated by 1.94% to N1,600 at the Nigerian Foreign Exchange Market (NFEM) window, while also depreciating at the FMDQ FX window by 1.96% to settle at N1,631.90, investment banking firm CardinalStone Partners Limited said .
“This was as a result of persistent demand pressure arising from the Foreign Portfolio Investors (FPIs) seeking to exit the market due to global risk-off sentiments,” analysts said. The CBN, however, participated in the interbank market to improve supply, selling $124.0 million at trades ranging from N1,595/$ to N1,610/$ amidst a slowdown in external reserves. CardinalStone said in its macro update that despite increasing global risk, Nigeria is likely to retain some foreign interest, with JP Morgan communicating its plan to deploy maturing proceeds from its NTB positions into attractive Nigerian 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.”
Analysts said they expect the recent publication of Nigeria’s net FX reserves position of $23.30 billion in 2024 versus $4.00 billion in 2023 to support sentiments. This position currently amounts to 7.3 months of import cover for goods compared to 12.0 months based on gross reserves and 5.0 months for goods and services versus 8.2 months on gross reserves, both comfortably above the IMF’s benchmark of 3.0 months.
Foreign investors exiting Nigeria stokes pressure on Naira
