Following the Central Bank of Nigeria (CBN) policy of increased interest rates for foreign investors, Nigeria’s external reserves grew by $7.7 billion within 11 months from $32.6 billion to $40.3 billion.
The growth was attributed to inflows of Foreign Direct Investment (FDI).
It was noted that FDI increased due to portfolio investors’ eagerness to leverage on the nation’s elevated interest rate, thereby increasing the amount of dollars sent to Nigeria.
It was observed that the country’s external reserves will continue to rise as capital inflows flock to the Nigerian market.
According to analysts at Lagos-based FBNQuest Capital Research, “The nation’s gross official reserves trend has largely been upward since April 2024.”
“This trend mostly reflects the recovery of foreign portfolio inflows (FPIs) resulting from the elevated interest rate environment due to the CBN’s hawkish monetary policy stance,” the analysts explained.
Amazed and satisfied with the outcome of the monetary policy, the CBN governor, Olayemi Cardoso, explained the reasons for banks raising interest rates.
He stated that the apex bank’s 27.5 percent interest state was not to strengthen the Naira against the dollar alone but the framework was meant to attract portfolio investors, which will ultimately better Nigeria’s economy and improve the nation’s business environment.
Investors King gathered that in a bid to ensure price stability, the apex bank has raised the rates by 18.75% for this year against last year, which totaled a combined 875 basis points.
Samson Simon, CEO/chief economist at ARKK Economics and Data Limited credited the rising interest rates framework as an initiative that will lure in portfolio investors and noted precautions.
Simon emphasized that “While FPI means something and would definitely help with Nigeria’s FX illiquidity, it is too fickle to be counted on. And when it is experiencing a downtick, it does not augur well.”
