The foreign exchange turnover on Nigerian Autonomous Foreign Exchange Fixing (NAFEX) has totalled US$144.0 billion since the establishment of the Investors and Exporters (I&E) forex window in late April 2017 by the Central Bank of Nigeria (CBN).
Turnover in this context according to analysts at FBNQuest covers both sides of trades. It picked up briefly from late July through to mid/late August as the CBN became the principal supplier on NAFEX to smooth an increasing number of exits by foreign portfolio investors (FPIs) from the fixed income market.
Those exits have since slowed as the worst fears for the global economy have not materialized. The decline in official reserves has slowed in tandem, FBNQuest said in a note to BusinessDay.
“External reserves are moderating following weak capital inflows and current account deficits in Q1 and Q2:2019,” Ike Chioke, group managing director, while presenting the report with the theme, ‘Beyond the Precipice…Pulling Back from the Brink’, in Lagos recently.
External reserves declined to $39.95 billion as at November 21, 2019, supports about 11 months of import cover (goods) – Weakest in 3 years.
Two weeks after opening a special Forex window for Small and Medium Enterprises (SMEs) to enable SMEs import eligible finished and semi-finished items, the CBN on April 21, 2017, established a Forex window for investors and exporters.
The purpose of the window was to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.
Oil price weakness leads to exchange-rate pressures, given the predominant role of oil revenue in FX inflows (60% even when remittances are included). The MPC and CBN respond in several ways. One trend for the MPC has been to tighten banks’ cash reserve requirement (CRR) ratios.
Another has been to set a policy rate designed to attract FPIs to the naira debt markets. This has been unsuccessful when that community is uncomfortable with the making of monetary policy (and is not confident in profit repatriation). This qualification explains why the hikes of 100bps in March and a further 200bps in July 2016 did not tempt foreign investors, and why the FX reforms of April 2017 had the desired impact.
The CBN also defends the exchange rate with administrative measures, a good example being its list of 41 banned import items in June 2015. When it can defend the naira no more, it devalues, as in November 2014, February 2015 and June 2016. The first two were intended as new levels for the CBN to manage.
The regulator has continued to intervene in the foreign exchange market to boost liquidity and ensure the stability of the exchange rate. “Sustained intervention of US$210.0m weekly by the CBN has kept rates stable,” analysts at Afrinvest West Africa Limited said.
Aggregate foreign exchange inflow into the CBN, at US$4.10 billion in October 2019, declined by 1.1 percent, which was below the level in the preceding month. It, however, showed an increase of 44.1 percent over the level at the end of the corresponding period of 2018. The fall in aggregate foreign exchange inflow into the CBN, relative to the preceding month’s level, was attributed, largely, to the fall in oil receipts, the CBN’s economic report for the month of October indicated.
Aggregate outflow of foreign exchange from the Bank fell by 12.1 percent and 3.2 per cent to US$4.77 billion, below the levels at the end of the preceding month and the corresponding period of 2018, respectively. The development, relative to the preceding month’s level was attributed, mainly, to 0.5 percent and 13.0 percent decline in interbank utilisation and other official payments, respectively.
