Foreign investors are holding off on new investments into Nigeria until the naira finds some stability.

A fresh inflow of around $700 million was expected to come but that has now been suspended as investors grow cold feet and fear losses piling over the naira volatility.

“Foreign investors that thought the peak of the exchange rate would be N1,550/$ and came in have now picked mark-to-market losses on the currency,” a source revealed.

“They are touching their stop losses and are reversing their inflows. And we don’t have the liquidity to support that,” the source said.

Over a billion dollars of foreign inflows greased the foreign exchange market two weeks ago after the Central Bank of Nigeria (CBN) began to push through long-awaited pending reforms in the market.

The reforms, which included more transparent pricing of the dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) and higher interest rates on treasury bills, attracted dollar inflows and helped stabilise the naira after a period of turbulence.

But it wouldn’t last as the currency resumed its free-fall last week, closing at a new low of N1,665.50 per US dollar at the official market.

It however started to pare some of its losses in the parallel market towards the end of the week, appreciating to close on Friday at N1800/$, after weakening to as low as N1900/$.

“They set up stop losses at $/N1,700-1,800. There was no hedge because they didn’t think the naira would weaken so much but with the alternative market touching $/N1,900 last week, they are nervous already,” another source familiar with the matter said.

Reinstating the 13-month NDFs for foreign investors, a weekly offer of one-year Treasury Bills- with the offer size published ahead of auction to aid planning- and the consistent intervention of the CBN via dollar sales in the NAFEM are all considered necessary to improve liquidity in the market and allay the fears of investors.

The CBN started selling dollars in the spot market on February 13 after a five-month break with the sale of $87 million to banks. The bank has sold more dollars since then but there has been no pattern to the sale and analysts say the amount being sold has been too little.

“The CBN was in the market again last week to sell about $85 million to the participating banks at the official market. That kind of development is encouraging, but it is not enough to stabilise the currency,” Ibrahim said.