According to the FMDQ Securities Exchange report for the month of April, foreign currency inflows into the currency market fell precipitously. The two main reasons of the steep fall were international and local players in the currency market.
In particular, a perceived lack of optimism among foreign investors causes them to reduce their involvement in the financial market, which results in a more than 69% fall in FX inflows into the currency market in April. In a debate, commentators compared the fall to the devaluation of the Nigerian naira as a result of the central bank’s low US dollar injections.
According to Cordros Capital Limited’s research, during that time, overall inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) decreased by 48.1% month over month to USD1.95 billion in April from USD3.75 billion in March.
Recall that exchange rate appreciated strongly in March as flood of foreign currency enterer the official market in addition to US dollars that were injected by the Central Bank of Nigeria to saturate the currency markets. The breakdown provided showed a broad-based decline across the local which accounted for 75.4% of total inflows period, while inflows from foreign sources accounted for 24.6%.
Expressly, local inflows declined by 33.6% month on month to USD1.47 billion from USD2.21 billion in March due to weaker inflows from non-bank corporates, CBN, and Exporters. Last month, foreign currency inflows from non-bank corporate channeled through the official window slumped by 47.4%, according to a review by Cordros Capital Limited.
FX flows from the CBN also nosedived by 35.1% in April and exporters flows declined by 19.1% in the same period. On the other hand, there was substantial increases in Individuals’ inflows, up 96.8% month on month.
Likewise, FX inflows from foreign sources came in lower, declining by 68.9% to USD478.10 million from USD1.54 billion as foreign investors began selling off risk assets to find safe havens amidst the lingering FX issues and weak macroeconomic environment.
“Looking ahead, we expect FX liquidity conditions to remain frail in the near term due to persistent demand-supply imbalances exacerbating distortions in the FX market.
“In addition, we think the elevated global interest rates and geopolitical tensions may keep foreign inflows subdued in the near term”, analysts at Cordros Capital Limited said in a note.
