• Friday, March 29, 2024
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BusinessDay

Forex turnover at NAFEX window hits $105.9bn

CBN FX sales

The foreign exchange turnover at the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) has totalled $105.9 billion from inception in late April 2017 through March 26, 2019, and $9.7 billion since February 27 alone.

The surge over the past month is attributable to foreign portfolio investor (FPI) inflows to the fixed-income market, according to FBNQuest, as investors are comfortable with their ability to exit the market at will.

Meanwhile, the outcome of the concluded general elections further gave the foreign investors comfort that the current foreign-exchange policies are likely to remain in place.

Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), said at the BusinessDay Post-Election Outlook Conference last week that over $6 billion has been flown into the local bond market in one month, indicating confidence in the economy.

The FPI inflows have enabled the CBN to become a regular buyer of FX on NAFEX, such that gross official reserves have increased by $1.73 billion to $44.04 billion since the presidential election through to 25 March. Both oil price trends and the FPI surge into local money and debt markets provide a temporary floor to reserves.

In the event of an unanticipated exit of FPIs from the local markets, which would make the CBN a regular seller at NAFEX, there is still a healthy buffer against additional shocks, according to FBNQuest. Estimates on the high side put the stock of FPI monies in the market at $17 billion.
The CBN on Tuesday surprised Nigerian analysts, economists and investors with a 0.5 percent reduction in its benchmark interest rate to 13.5 percent, from 14 percent since July 2016.
“There are clear limits to the impact of this first change in the policy rate since July 2016. The impact would have been greater if the MPC had cut the cash reserve requirement (CRR) ratio,” FBNQuest analysts said on Wednesday.

The regulator retained asymmetric corridor around the MPR at +2%/-5%; Cash Reserve Requirement (CRR) at 22.5 percent, and Liquidity Ratio at 30 percent.

Consequently, Nigerian bond yields fell slightly on Wednesday, dropping to around 13 percent across maturities on minor buying interest, traders said. They later recovered to 14.15 percent. The most liquid one-year treasury yield fell 15 basis points to 12.75 percent.

At the money market, the overnight inter-bank rate declined by 1.79 percentage point to 15.50 percent. Also, the Open-Buy-Back (OBB) dropped to 15.14 percent on Wednesday from 16.43 percent the previous day.

However, the local currency depreciated by 0.12 percent as it closed at N360.68k per dollar compared with N360.25k traded the previous day at the I&E forex window, data from FMDQ show.

Naira closed stable at the Bureau De Change (BDC) segment and the CBN official window closing at N360 and N306.95k per dollar respectively.

“There are several fx windows in operation. We draw a distinction between the subsidised rate (currently N306.95) for priority transactions such as petroleum product imports and external debt-service payments, and those that are not subsidised by the CBN,” FBNQuest said.

“Whatever the terminology, they have had some success. Manufacturers are enjoying much improved access to raw materials, which is evident from the national accounts and from anecdotal evidence,” FBNQuest said.

 

HOPE MOSES-ASHIKE