Domestic, foreign sources grow FX inflows to $3.12bn in May

By Chinwendu Obienyi

Aided by broad-based increases in inflows from both domestic and foreign sources, total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) surged to $3.12 billion in May, representing a 60.5 per cent month-on-month (m/m) growth from $1.95 billion recorded in April.

According to data obtained from FMDQ’s website, total transactions stood at 68.5 per cent from local sources while gross transactions during the reporting month stood at 31.5 per cent from foreign sources.

Specifically, inflows from local sources increased by 47.5 per cent m/m from $1.47 billion in the previous month to $2.14 billion. The increase, according to financial analysts, was driven by increased interventions by the Central Bank of Nigeria (CBN) which grew by 432.6 per cent during the reporting period. They also stated that the increase was also due to inflows from exporters (27.2 per cent m/m) and non-bank corporates (16 per cent m/m).

Similarly, collections from foreign sources increased significantly by 105.9 per cent m/m to $984.40 million as against $478.10 million in April, supported by improved foreign investor confidence given the CBN’s sustained FX market reforms and higher yields on naira-denominated assets.

The CBN recorded its highest dollar sales, intervening in the FX market to boost supply. The data from the FMDQ revealed that some $575 million was offloaded by the apex bank in the reporting period to make up for thinner foreign investments inflows. This is more dollars sold than in March ($189 million) and April ($151 million), resulting in a total of $340 million.

The apex bank’s intervention in May, though exceeding previous months, accounted for only 6.6 per cent of the $5.89 billion market turnover for the month of May.

Daily Sun had reported that liquidity in the country’s FX market has declined as the instability in the exchange rate and soaring inflation rate had led to growing concerns with economic experts increasingly pessimistic about the naira’s short term prospects in June and what it may mean for Africa’s biggest economy.

Although, the nation’s FX reserves increased by $109.89 million week-on-week (w/w) to $32.80 billion and the naira appreciated by 0.1 per cent w/w to N1,483.99/$1 at NAFEM, the total turnover at the market declined by 56.3 per cent WTD to $827.49 million, with trades consummated within the N1,250.00/$1 – N1,520.00/$1 range.

Analysts at Cordros Research, noted that the continued intervention by the CBN and ongoing FX market reforms are expected to sustain investor confidence and support liquidity in the NAFEM, adding that this is critical for maintaining the positive momentum and ensuring a stable and robust foreign exchange market in Nigeria.

They added that they expect the naira to be pressured this week.

“We note the renewed pressure in the FX market stemming from limited intervention by CBN and weak offshore participation. Given CBN’s sporadic FX supply and weak net FX reserves, we anticipate continued pressure on the naira. However, we expect the forthcoming World Bank meeting this month, where a $2.20 billion loan facility for Nigeria is expected to be approved, with an initial partial disbursement ($750.00 million, subject to request), to offer short-term support for the naira”, they said.