Naira firms as foreign investors return to fixed income assets

The Nigerian currency the naira has pared losses this year versus the dollar to 0.6 percent as foreign portfolio investor’s return to the nations fixed income market.

“The rally in the foreign-exchange market is the product of NNPC dollar sales coupled with an aggressive offshore bid for naira fixed-income assets,” Samir Gadio, a London-based emerging-markets strategist at Standard Bank Group Ltd., said.

“It looks like the bullish external risk environment is pushing foreign investors to come back to the Nigerian market.”

The naira which fell to a record low of N169/$ at the interbank market following the suspension of CBN Governor Sanusi Lamido Sanusi has rebounded to trade at N160.81/$, while inflation for February eased to 7.7 percent from 8 percent in the previous month, remaining within the central bank’s 6 percent to 9 percent target band.

Nigeria’s gross dollar reserves plunged to an 18 month low- after Sanusi’s suspension – and have declined 13 percent this year to $37.96 billion as of April 10.

The return of offshore investors to Nigeria’s fixed income market would be welcome by the CBN, and help underline a bid for the naira.

Provisional data indicated that foreign exchange inflow and outflow through the CBN in the month of January 2014 was $2.54 billion and $4.65 billion, respectively, resulting in a net outflow of $2.11 billion, compared with the net outflow of $0.69 billion in the preceding month, according to recent data from the CBNs economic report for January 2014.

Outflows rose by 23.3 and 202.5 percent above the levels in the preceding month and the corresponding period of 2013, respectively.

“The development was attributed, largely to the increase in rDAS, BDCs and interbank sales which amounted to $2.99 billion, $0.56 billion and $0.49 billion, respectively,” the CBN said in the report.