The naira on Monday fell to 1,419.11 per dollar, the lowest since March 13, 2024 at the official foreign exchange (FX) market, as foreign portfolio inflows cool.
Data from the FMDQ Securities Exchange showed that the net inflows from the FPIs declined by 75.23 percent to $182 million in April 2024 from $735 million recorded in March 2024.
Monday’s rate means the naira weakened by 5.63 percent compared to the closing rate of N1,339.23 on Friday at NAFEM.
At the parallel market, commonly referred to as the black market, the naira appreciated to 1,360 per dollar, gaining 5.14 percent from 1,430/$1 closed on Friday.
Taking advantage of the recent hike in the interest rate by the Central Bank of Nigeria (CBN) and short-term appreciation of exchange rate, the FPIs made huge returns and withdrew their money out of the Nigerian economy.
“Nigeria needs to be careful with FPIs,” said Muda Yusuf, chief executive officer, Centre for the Promotion of Private Enterprise. “They can take their money out as fast as they bring it in and that could leave us exposed,” Yusuf said.
Olaolu Boboye, lead economist CardinalStone Limited, an investment bank based in Lagos, said foreign investors are existing due to a list of reasons which include the geo-political tensions.
He said geopolitical tension in the Middle East has triggered investors to exit some emerging markets like Nigeria, which is why the gold price is currently at a year’s peak and the dollar has been strengthening. Investors are escaping to what they perceive to be safe or stable.
Secondly, investors have made tons of money from when they came in the first quarter. When they arrived, they were offered as much as 26 percent on Treasury bills and even more from the naira appreciation. “Another which is more fundamental is that we are not seeing adequate fiscal support,” he said.
Segun Sopitan, Principal Partner at Woodridge and Scott Consulting, said, “There is a panic amongst foreign portfolio investors who think that as a result of a lack of hedge products in Nigeria, we have an immature derivatives market. Also, the confidence that the market had in the naira was off the back of the CBN’s interventions.
According to him, there’s a confidence crisis in the market, and when that happens, capital flight happens. The CBN governor needs to reassure the market that the naira will remain stable.
He noted that the CBN adopted a free market economy, but no country does that anywhere in the world. That might happen in some of their foreign exchange markets. But when the market is moving in a direction that is counter to the policy stance or policy objectives of that country, their regulatory bodies always intervene.
“The CBN needs to assure the market that the naira will remain stable and that the central bank will do all that is required to guarantee the stability of the currency.
“The other policy measure that the CBN can do, is to work with the FMDQ to produce hedge instruments. We can have forward products; we can have futures. So, if the FMDQ is also able to work with the CBN to try and deepen the derivatives market, then that would also help,”Sopitan said.
Additional reporting by Eniola Olatunji and Zainab Aderounmu
