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By Chinwendu Obienyi
The total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) increased significantly to $4.05 billion in November, representing a 32.9 per cent month-on-month (m/m) growth from $3.04 billion in October, latest data from FMDQ revealed at the weekend.
The growth, according to FMDQ, was driven by a broad-based increase across local (57.8 per cent of total transaction value) and foreign (42.2 per cent of total transaction value) inflows.
Analysing the breakdown provided, inflows from local sources rose by 38.5 per cent m/m to $2.34 billion (October: $1.69 billion) due to increases from the CBN (+27.0 per cent m/m) and non-bank corporates (+56.0 per cent m/m) segments, while inflows from Individuals (-88.5 per cent m/m) and exporters (-63.5 per cent m/m) fell.
Similarly, inflows from foreign sources reached its highest level since January 2020, increasing by 26.0 per cent m/m to $1.71 billion (October: $1.36 million), reflecting sharp increases in inflows from FPI (+39.9 per cent m/m) and other corporates (+43.9 per cent m/m), amid a decline in FDI inflows (-84.2 per cent m/m).
Economic analysts speaking on the development, attributed the sturdy performance in FPI inflows to improved investor confidence and increased FPI participation in the Nigerian Capital Market as naira yields remain attractive.
They added that barring any shock, they anticipate FX inflows to remain robust in the short term, supported by improved market confidence, following the implementation of the Electronic Foreign Exchange Market System (EFEMS).
It will be recalled that the EFEMS was launched recently by the Central Bank of Nigeria (CBN) to streamline foreign exchange transactions.
Consequently, the naira appreciated by 7.3 per cent week-on-week (w/w) to N1,558.65/$1 following an increase in FPI inflows while it also appreciated 11.3 per cent w/w at the parallel market to exchange at N1,545/$1. Meanwhile, the country’s FX reserves level grew by $68.65 million w/w to $40.30 billion.
Total NAFEM turnover (as of 5 December) decreased by 26.3 per cent week-to-date (WTD) to $1.80 billion, with trades consummated within the N958.00/$1 – N1,710.00/$1 band. In the forwards market, the naira rates increased across the 1-month (+5.1 per cent to N1,620.44/$1), 3-month (+3.8 per cent to N1,711.20/$1), 6-month (+5.6 per cent to N1,788.12/$1), and 1-year (+5.5 per cent to N1,995.14/$1) contracts.
Owing to the development, analysts at Cordros Research, noted that FX market liquidity is expected to remain strong in the short term as attractive naira yields and a more efficient FX trading system, given the implementation of EFEMS, continue to support inflows from FPIs.
“Additionally, we anticipate the recently issued Eurobond ($2.20 billion) to bolster the CBN’s capacity to support market liquidity. This is likely to further strengthen the naira in the near term. Nonetheless, we highlight that the upside risk to the naira remains, which includes the increasing geopolitical tension”, they said.
Echoing the same sentiment, Afrinvest in their weekly note, said, “This recovery could be attributed to improved market confidence following the successful launch of the CBN’s electronic FX matching platform designed to promote trading transparency and liquidity supply boost provided by Nigeria’s successful pricing of $2.2 billion in Eurobonds earlier in the week. We anticipate the Naira to regain more ground against the dollar next week, driven by aforementioned factors”.
