‘Naira Depreciation Could Rekindle Foreign Portfolio Investors’ Interests’
Analysts in Nigeria’s financial sector have expressed optimism that the Central Bank of Nigeria’s (CBN) adjustment of the Foreign Exchange (FX) rate to N380 to $1, could rekindle the interest of foreign portfolio investors in the country’s financial instrument.
According to them, data obtained from the Nigerian Stock Exchange (NSE) shows that foreign portfolio transactions now stand at a ratio of 73 per cent outflows and 27 per cent inflows.
The experts maintained that the move suggests that international investors are somewhat hesitant to purchase Nigerian assets amid the unfavourable global and domestic conditions.
Speaking with The Guardian, the Senior Research Analyst at FXTM, Lukman Otunuga, said that aggressive monetary policy and fiscal responses must be implemented to cushion the damage inflicted by the coronavirus outbreak, which has infected over 100 people in Nigeria.
He said that such steps could stimulate appetite for foreign portfolio investments, but noted that external developments would play a key role.His words: “Fears over Nigeria descending into a recession have intensified after US crude tested levels below $20 for the first time in more than 17 years.
Read Also:
The last few months have certainly not been kind to oil, which has depreciated over 65 per cent since the start of 2020.
“At this point, it will be difficult for Africa’s largest economy to mirror the Gross Domestic Product (GDP) growth witnessed in 2019 with the first-quarter GDP expected to paint a gloomy picture. The main risk event for the economy would be the FX data for March.
“With oil expected to trend lower amid widespread lockdowns across the world and aggressive price war between OPEC & US Shale, it is nothing but bad news for emerging market energy producers like Nigeria.
“Given how over 90 per cent of export earnings and more than 60 per cent of government revenues are acquired from crude oil sales, this nightmare development threatens to sabotage Nigeria’s fragile economic recovery. The negative impacts can already be seen on the Naira, 2020 budget, and local stocks, and it does not end there.
“Earlier in the year, Governor, CBN, Godwin Emefiele, mentioned that if external reserves tumbled to between $30 billion and $25 billion, and oil price depreciated between $50 – $45, the CBN could consider floating the exchange rate and weaken the naira. This may become a reality sooner than initially anticipated.”
