Nigeria’s foreign exchange reserves decreased by $317.95 million week-on-week to $33.51 billion as of April 3, 2024.
Meanwhile, the naira appreciated by 4.7 percent to N1,251.05/$ at the Nigerian Autonomous Foreign Exchange Market, even as total turnover at the window (as of 04 April 2024) decreased by 70.7 percent week-to-date to $633.65 million, with trades consummated within the N1,200.00 – N1,312.00/$ band.
In the Forwards market, the naira rates appreciated across the 1-month (+4.4% to N1, 277.79/$), 3-month (+5.5% to N1, 302.91/$), 6-month (+5.7% to N1, 360.09/$) and 1-year (+4.2% to N1, 479.02/$) contracts.
Based on the data obtained from FMDQ, total inflows into the Nigerian Autonomous Foreign Exchange Market increased by 41.7 percent month-on-month to $3.75 billion in March compared with $2.64 billion in February, being the highest level since March 2019 ($6.07 billion).
Financial experts at Cordros Research Limited attributed the outturn to the higher inflows across local (59.0% of total transactions) and foreign sources (41.0% of gross transactions).
Analyzing the breakdown, the experts noted that inflows from local sources increased by 43.2 percent m/m to $2.21 billion in March (February: $1.54 billion) driven by higher accretions from Individuals (+405.8% m/m), Non-Bank Corporates (+157.7% m/m), and Exporters (+14.6% m/m) segments, while inflow from the CBN (-65.7% m/m) declined.
Simultaneously, collections from foreign sources surged by 39.6 percent m/m to $1.54 billion (February: $1.10 billion), representing a 50-month high as foreign investors reacted positively to the recent CBN initiatives and increased FX interventions aimed at ensuring liquidity and stability within the FX Market.
Overall, total inflows into the NAFEM window averaged $2.47 billion in Q1-24 (Q4-23: $1.34 billion | Q1-23: $1.09 billion).
In the near term, analysts anticipate improvement in FX liquidity conditions, although still weak relative to historical standards.
“We acknowledge that the increased CBN interventions have (1) bolstered investors’ confidence, (2) reduced speculative activities and market distortions, and (3) improved liquidity in the FX market. As a result, we anticipate sustained improvement in foreign participation over the short term.
“We acknowledge the CBN’s continuous efforts in the FX market to stabilise the naira, reflected in the (1) sustained sale of US dollars to eligible BDCs and (2) maintenance of high yields on naira-denominated assets to support FPI inflows. Whilst CBN’s intervention in the FX market is poised to remain frail in the near term given its low FX reserves, we expect the naira to remain stable in the short term, supported by tighter monetary policy conditions and improved FX liquidity,” they added.
“Overall, total inflows into the NAFEM window averaged $2.47 billion in Q1-24 (Q4-23: $1.34 billion | Q1-23: $1.09 billion).”
In the money market, the overnight rate contracted by 521bps w/w to 23.0 percent, despite the debits for the CBN’s OMO auction (N676.65 billion). Nevertheless, the average system liquidity settled lower at a net long position of N467.73 billion (vs a net long position of N770.32 billion in the previous week).
“We envisage pressure on the system liquidity next week following a possible net NTB issuance at the Wednesday PMA, amid no significant inflow into the financial system.
Thus, we believe the OVN rate will likely head northwards,” Cordros explained.
Meanwhile, the treasury bills secondary market closed on a bearish note this week, as the average yield across all instruments expanded by 91bps to 18.9 percent as Cordros attributed the week’s performance to the liquidity dearth occasioned by players’ funding for the OMO auction held on Wednesday.
Across the segments, the average yield increased by 125bps to 18.9 percent in the NTB secondary market but declined by 8bps to 18.4 percent in the OMO segment.
At the OMO auction, the CBN offered N500.00 billion – N75.00 billion of the 95-day, N75.00 billion of the 179-day, and N350.00 billion of the 361-day – in bills.
The total subscription level settled at N1.20 trillion (bid-to-offer: 2.4x) with more interest on the longer-dated bills (N1.16 trillion translating to 96.9% of the total subscription).
The auction closed with the CBN allotting N649.65 billion – N17.00 billion of the 95-day, N7.25 billion of the 179-day, and N652.40 billion of the 361-day instruments – at respective stop rates of 19.00% (unchanged), 19.50% (unchanged), and 21.13% (previously 21.50%).
Considering the expectation of tight liquidity conditions next week, experts anticipate a further increase in yields in the T-bills secondary market. In addition, the CBN is scheduled to hold an NTB PMA on Wednesday (10 April) with N149.64 billion worth of maturities on offer.
