Shortage in forex inflow weighs down NAFEM, declines by 6.2% to $1.23bn in October

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BY FESTUS OKOROMADU

Data obtained from FMDQ, shows that total inflows into the Nigerian Autonomous Foreign Exchange Market declined by 6.2 percent month-on-month (m/m) to $1.23 billion in October after hitting a 3-month high of $1.31 billion in September.

The breakdown provided shows that the decline was driven by lower inflows from local sources which stood at 87.1 percent of total inflows, despite improvement from foreign investors contributing 12.9 percent of aggregate inflows.

Notably, inflows from local investors dipped by 14.6 percent m/m to $1.07 billion in October compared with $1.26 billion in September, amid significant declines in the CBN (-94.8 percent m/m), and Individuals (-99.0 percent m/m) inflows.

Meanwhile, inflows from foreign sources settled higher by 182.9 percent m/m to $158.70 million, although still significantly below the pre-pandemic level (Q1-20 average: $1.28 billion).

However, financial experts have expressed cautious optimism on the official forex market as reforms initiated by the CBN begin to yield results.

“We expect forex liquidity conditions to improve slightly, albeit still frail relative to historical standards, as it appears the CBN has regained its momentum regarding forex reforms.

Nonetheless, we expect foreign investors to be keenly watching the development in the forex space with regard to the expected forex inflows as guided by the authorities; CBN’s recent actions in clearing its FX backlogs, and firm direction of short-term interest rates,” researchers from Cordros stated,
Meanwhile, the CBN last week started clearing parts of its outstanding forex backlogs, beginning with the banks that make up a smaller portion of the total outstanding forex forwards. The apex bank also stated that it was working on clearing the others.

Simultaneously, the CBN conducted another OMO auction on October 30, selling N400 billion across three tenors, with the 365-day bill closing at 17.50 percent (annualised: 21.20 percent).
The CBN auctioned another OMO bill two days later, selling instruments worth N77.20 billion. The stop rate averaged 15.36 percent across the three tenors, with the 365-day bill closing at 17.98 percent (effective yield: 21.91 percent).