Untill the Nigerian naira stabilizes, international investors are delaying making fresh capital investments into the economy of Nigeria.
Around $700 million in fresh capital inflows were anticipated, but those have since been halted as investors lose heart and worry about more losses due to the naira’s volatility.
The foreign exchange market was lubricated by inflows exceeding $1 billion two weeks ago, after the Central Bank of Nigeria (CBN) implementation of much-needed market reforms.
The changes attracted dollar inflows and assisted in stabilizing the naira following a period of volatility. They included more transparent dollar pricing at the NAFEM and increased interest rates on Treasury notes.
Last week, the currency started to decline once more, ending at a record low of N1665.50/$1 on the official market.
But near the end of the week, it began to recover some of its losses in the paralell market, closing on Friday at N1,800/$1.
The CBN’s market interventions were the most recent in a series of actions intended to increase Forex market liquidity and prevent rates on the official and paralell markets from collapsing as they did following the naira’s initial free trade with the US dollar last June.
In order to stabilize the naira and attract international investors, higher interest rate are needed according to some expert analysis prior to International Policy Committee (MPC) meeting that is scheduled for the coming Monday and Tuesday.
The benchmark interest rate is expected to increase by 300 basis points as the CBN tries to deter rapidly rising inflation by signaling monetary tightening.
