Foreign exchange inflows into Nigeria surged by 62 per cent month-on-month (m/m) to $5.96 billion in May, as the naira appreciated further to N1,551/$ on the back of increased investor confidence and strong domestic participation in the forex market.
Data from FMDQ Exchange showed that the sharp rise in total inflows, which rose from $3.67 billion in April, was largely driven by a significant uptick in contributions from local sources, which accounted for 83.2 per cent of total inflows. Domestic forex supply hit a six-year high, rising by 64.2 per cent to $4.96 billion, buoyed by increased activities from exporters/importers, non-bank corporates and individuals.
Specifically, inflows from exporters and importers soared to $3.11 billion, a sharp increase from $655.7 million recorded in April. Non-bank corporates contributed $1.11 billion in May compared to the April figure of $1 billion, while individual inflows climbed to $91.4 million from $15.1 million the previous month. However, inflows from the Central Bank of Nigeria (CBN) moderated to $649.8 million from $1.35 billion in the prior month.
On the foreign front, inflows rose by 51.7 per cent to $997.6 million, the highest in three months, reflecting improved confidence among offshore investors amid a relatively calmer global macroeconomic environment. Foreign portfolio investments (FPIs) rose by 61.3 per cent to $880.8 million, while other corporate flows increased by 10.0 per cent to $83.9 million. However, foreign direct investment (FDI) dipped marginally by 6.3 per cent to $32.9 million.
Market analysts opine that the renewed interest from foreign investors is partly hinged on the CBN’s recent monetary tightening and sustained OMO auctions, which have continued to offer attractive yields.
Last week, the value of the naira had appreciated by 2.3 per cent, week on week to N1,551 per dollar supported by increased supply from FPIs who were looking to participate in the OMO auction. Improved investor sentiment was evident at the money market where the Overnight (OVN) rate rose slightly by one basis point week-on-week to 27.0 per cent due to liquidity drain from the OMO auction worth N1.51 trillion.
Despite the liquidity pressure, system liquidity remained in a net positive position at N628.90 billion, though down from N1.88 trillion recorded in the previous week. Barring further CBN liquidity mop-ups, analysts expect inflows from maturing OMO bills of N263.33 billion to bolster system liquidity in the near term, potentially moderating interest rates.
In the fixed income market, the secondary Treasury bills segment remained bullish, supported by unmet demand from the recent Primary Market Auction (PMA). Consequently, the average yield across all tenors declined by 3 basis points to 23.0 per cent. The NTB segment saw a 4bps decline in yields to 20.7 per cent, while the OMO segment rose by 10bps to 25.8 per cent.
Also, DMO last week successfully conducted an NTB auction, offering N450 billion across 91-day, 182-day and 364-day bills. The auction witnessed strong demand, with total subscriptions rising to N1.31 trillion and a bid-to-offer ratio of 2.9x. Stop rates settled at 17.98 per cent, 18.50 per cent and 19.35 per cent respectively.
Similarly, the CBN’s OMO auction attracted strong investor interest, with subscription levels reaching N1.53 trillion for a total offer of N600 billion. The apex bank allotted N1.51 trillion, with stop rates at 24.20 per cent (106-day) and 24.64 per cent (232-day).
Meanwhile, the FGN bond market remained largely subdued, with average yields holding steady at 18.9 per cent. Yield movements were mixed across the curve, with short-dated bonds experiencing slight selloffs, while mid- and long-term instruments saw increased demand, especially for APR-2032 and MAR-2036 papers.
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