Foreign exchange inflow into the country through the Nigeria Autonomous Foreign Exchange market (NAFEX) rose by 10.7 per cent last month to $937.6 million this is as the 30-days moving average of Nigeria’s external reserves depleted by 1.14 per cent.
Compared to $37.069 billion which it was on January 2, 2023, the 30-days moving average of the external reserves declined by $421.14 million to $36.648 billion as at March 2, 2023.
Meanwhile, data obtained from FMDQ, showed that total dollar inflows into the NAFEX which is also known as the Investors & Exporters Window (IEW) increased by 10.7 per cent month on month in February compared to $847.20 million that was recorded in January this year.
The increase was due to higher inflows from both the local and foreign sources. Local sources which accounted forn87.1 per cent of total inflows rose by 11.4 per cent to $816.9 million while the foreign source which accounted for 12.9 per cent of inflows was up by 5.9 per cent to $120.7 million.
Analysts at Cordros Research noted that foreign inflows remain significantly below pre-pandemic levels of $1.56 million monthly average recorded in 2019 due to forex liquidity constraints, an overvalued currency, and a weak macro narrative.
At the equities market, foreign investors’ participation remained low as domestic investors were net buyers of equities for the first time in seven months. Foreign investors were net sellers of Nigerian equities amid lingering forex liquidity constraints, election uncertainties, and high global interest rates.
The analysts say they expect forex liquidity conditions to remain frail in the short-to-medium term, in the absence of reforms to attract dollar inflows into the economy. “The low forex liquidity conditions will also be driven by lingering global uncertainties and higher global interest rates, limiting foreign inflows to the economy. Thus, foreign investors will need some convincing actions as regards flexibility and clarity in the forex framework going forward.
“We believe forex liquidity issues will remain over the short-to-medium term as we do not see any positive signal that denotes an improvement in forex supply relative to the pre-pandemic levels. Moreover, considering the tepid accretion to the reserves given low crude oil production and elevated PMS under-recovery costs, FPIs who have historically supported supply levels in the IEW will be needed to sustain forex liquidity levels in the medium to long-term.”
Last week, Demand and supply pressures in the forex market persisted. The naira appreciated by N4 or 0.53 per cent week on week to close at N758 to the dollar from N762 in the previous week, while at the investors’ and exporters’ forex window, the naira depreciated by marginal 0.13 per cent week on week to close at N461.75 per dollar from N461.17 to the greenback.
At the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchanged closed at N462 per dollar. The remained green across all forward contracts with appreciations reported for the 1-Month, 2-Month, 3-Month, 6-Month and 12-Month tenor contracts against the greenback by +3.76, +1.54, +1.14, +2.59 and +5.00 per cents week on week to close at contract offer prices of N467.20, N476.27, N486.10, N512.13 and N543.35 respectively.
Analysts at Cowry Assets Management say they expect the naira demand pressure is expected to stay unabating following the limited supply of the local currency market and the recent ruling from the Supreme court on Friday which renders the old banknotes a legal tender until the December 31,2023. However, it is very unlikely for the apex to comment on the court judgement as it has resolved to phase out the old banknotes from system in the bid to monitor currency in circulation and money supply.
