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–Experts blame absence of intervention
By Chinwendu Obienyi
Amid low liquidity of foreign exchange, local and foreign investors recommenced their wait-and-see approach in the FX market, leading to a significant decline of total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) in January 2024.
According to data obtained from the FMDQ at the weekend, total inflows into NAFEM dropped to $832.20 million from $1.37 billion recorded in December 2023, representing a 39.3 per cent decline month-on-month (m/m).
This development marks the second consecutive month of contraction and represents the lowest level since July 2023 (N818.70 million).
The breakdown provided shows a broad-based decline across local (84.0 per cent of total inflows) and foreign (16.0 per cent of total inflows) sources.
Specifically, inflows from local investors dipped by 38.3 per cent m/m to $699.00 million in January as compared with $1.13 billion recorded in December 2023 following significant declines from the Exporters (-20.9 per cent m/m) and Non-Bank Corporates (-52.7 per cent m/m) collections despite growth in the Individuals segment (+94.4 per cent m/m).
On the other hand, foreign investors continued to remain cautious, staying on the sidelines due to perceived inadequacies in the nation’s FX market. Precisely, inflows from foreign sources reached a 4-month low of $133.20 million, down from $237.10 million in December 2023.
Economic experts, while speaking to Daily Sun, attributed the development to the absence of the CBN’s interventions in the past 3 months. Although the CBN had recently announced that it had released an additional $500 million to address verified outstanding FX liabilities to various sectors of the economy.
The announcement was obviously targeted at arresting the continuing decline of the Naira at both the official and parallel market. However, the announcement has not mitigated the naira’s woes. For instance, the country’s FX reserves paused its accretion trend after five consecutive weeks, as the gross reserves level dropped by $18.03 million week-on-week (w/w) to close at $33.35 billion (January 30, 2024).
Similarly, the naira depreciated by 37.9 per cent to N1,435.53/$1 at the NAFEM, majorly influenced by the FMDQ’s revision of the NAFEM rate calculation methodology amid the CBN’s circular on harmonization of reporting requirements of foreign currency exposure of banks.
However, the naira closed flat at the parallel forex market where forex is sold unofficially, the exchange rate quoted at N1,500/$1, a decline of 0.33 per cent against N1,495 it closed the previous day, while peer-to-peer traders quoted around N1432.40/$1.
Macroeconomic strategist, Cordros Capital, Abdulazeez Kuranga, noted that with the decline in total inflows, FX liquidity conditions will remain frail in the near term but added that the recent CBN reforms to boost liquidity in the FX market could cause a shift over the medium term.
“Simultaneously, we believe that foreign inflows will stay below the pre-pandemic level (Q1 2020 average: $1.28 billion) as foreign investors may adopt a wait-and-see approach. Nonetheless, we do not rule out the possibility of an improvement in foreign participation over the medium term, to be driven by expected FX inflows as guided by the authorities and CBN’s recent actions aimed at clearing its FX backlogs”, Kuranga said.
