With overall inflows into the market reaching $3.75 billion in March 2024, foreign exchange inflows into the Nigeria Autonomous Foreign Exchange Market (NAFEM) were on the rise last month, hitting their highest monthly level in over three years.
According to FMDQ data, the inflow for March was 41.7% more than the $2.64 billion reported in February of this year. Local sources accounted for 59% of the total transactions, while foreign sources provided 41% of the gross transactions.
An examination of the breakdown revealed that, in March, inflows from local sources reached $2.21 billion, up 43.2% month over month from $1.54 billion in February, primarily due to larger individual contributions.
Individual contributions increased by 405.8%, while exporters and non-bank corporations had increases of 14.6 and 157.7%, respectively. Nonetheless, the Central Bank of Nigeria’s (CBN) inflow had decreased by 65.7%.
Concurrently, foreign source collections increased by 39.6% month over month to $1.54 billion from $1.1 billion in February, a 50-month high as foreign investors responded favorably to recent CBN initiatives and increased foreign exchange interventions meant to maintain stability and liquidity in the foreign exchange market.
In the first quarter of 2024, overall inflows into the NAFEM window averaged $2.47 billion, up from $1.09 billion in the first quarter of 2023 and $1.34 billion in the last quarter of 2023.
In the meantime, the Naira kept strengthening, closing the week’s trading session on Friday at N1.251.05 to the dollar, down from N1,303.33 at the start of the session. Throughout the week, trades were completed within the N1,200–N1,312 to the dollar range. In the forwards market, the naira rates increased for all contracts, with the 1-month rising by 4.4 percent to N1,277.79 to the dollar, the 3-month rising by 5.5 percent to N1,302.91 to the dollar, and the 6-month and 1-year contracts rising by 5.7 and 4.2 percents to N1,360.09 and N1,479.02 to the dollar.
As of April 3, 2024, Nigeria’s foreign currency reserves had dropped by $317.95 million on a weekly basis to $33.51 billion, while analysts are expecting the FX liquidity situation to improve.
While forex liquidity is still low by historical norms, Cordros Research analysts acknowledged that the increasing CBN interventions have raised investor confidence, decreased speculative activity and market distortions, and improved forex market liquidity. Consequently, we expect a short-term trend of consistent improvement in foreign participation.
We recognize the CBN’s persistent efforts in the foreign exchange market to stabilize the naira, as seen by the ongoing sale of US dollars to qualified BDCs and the upholding of high yields on assets denominated in naira to encourage foreign investor inflows.
“We expect the naira to remain stable in the short term, supported by tighter monetary policy conditions and improved forex liquidity, even though CBN’s intervention in the forex market is poised to remain frail in the near term given its low forex reserves.”