According to FMDQ Securities Exchange, foreign investment into Nigeria grew by 44.3% in June to $298.8 million.
According to FMDQ experts, the inflow was “underwhelming” when compared to the $1.56 billion monthly average from before the outbreak.
It stated that increased inflows from non-bank corporates, which contributed 35.7% m/m to $597.1 million and exporters, who contributed 2.3% m/m to $448 million, caused local inflows to increase by 19.3% m/m to $1.11 billion.
According to the exchange, total inflows through the Investors & Exporters (I&E) window grew for the second consecutive month in June, jumping by 23.8% month over month to $1.41 billion, up from the $1.14 billion reported in May.
In response to developments in the currency market, Codros Securities expressed confidence that as market players’ trust grows, the reforms in the forex market will translate to better liquidity conditions over the medium term.
However, it noted that foreign investors will probably take a “wait-and-see” stance in the immediate future as they watch to see what the CBN does to clear its currency backlogs and how short-term interest rates will move forward in the face of high inflation.
“On 5 July, the FMDQ Securities Exchange announced a revision of the computation methodologies of the NAFEX and IEW spot rates to effect a transition from the current contributions-based model (which involves the use of indicative quotes from market participants) to a transactions-based model (which will apply actual FX market transaction data), effective 5 July 2023. ”
“We understand that the CBN has granted the International Oil Companies (IOCs) permission to resume selling US dollars (USD) to dealing member banks, as against the previous arrangement of selling to the CBN.”
The modification, according to Codros Securities, is in line with the current domestic currency market reforms as well as the global transition to a transaction-based benchmark administration model.
Although there would be higher intra-day volatility, the company thought the computation adjustments would boost transparency in the computation of the spot FX rates and give a clearer image of the rates reflective of the market realities at different times.
It continued by saying that allowing IOCs to sell their dollars to dealing parties would probably improve FX liquidity in I&E over the long run, ultimately supporting the local currency.
Nigeria’s foreign exchange reserves, meanwhile, declined for the seventh week in a row as on July 6, 2023, when they closed at $34.06 billion, down $60.27 million week over week.
At the I&E, the naira also declined by 1% to N776.90/USD, and overall turnover fell by 48.1% WTD to $367.23 million at the end of trading on July 6, 2023.
Trading in foreign exchange took place at the IEW within the range of N600 to NGN820/USD.
“In the weeks ahead, we expect the re-introduction of the ‘willing buyer, willing seller’ model at the IEW to influence the exchange rate direction.”
“Nonetheless, while the CBN’s abolishment of its multiple Forex windows is positive in boosting foreign investors’ confidence, we think they will adopt a wait-and-see approach, for now, looking for signals on the CBN’s plans to start clearing the Forex backlogs and boosting supply to support the market in the near term.”
