Foreign investors pump $823m into forex market

Foreign investors have committed $822.6 million into the economy through the Nigerian Autonomous Foreign Exchange Market (NAFEM) window.
The NAFEM is the market trading segment for investors, exporters and end-users that allows for forex trades to be made at exchange rates determined based on prevailing market circumstances, thus ensuring efficient and effective price discovery in the forex market.

The NAFEM was established by the Central Bank of Nigeria (CBN) via a circular dated April 21, 2017.

A report by Afrinvest West Africa Limited at the weekend indicated that the foreign capital inflows, represented year-to-date net inflows through the NAFEM window following CBN’s drive to attract foreign exchange.

It said: “Across the FX market this week, the naira remained stable and traded within a similar band as the previous week. At the NAFEM Window, activity level improved 41.4 per cent ($473.1 million) to $421.6 million and the price currency (naira) fell 4.9 per cent week-on-week against the base currency (dollar) to N1627.40/$1.00. Similarly, the price currency (naira) dipped 5.3 per cent week-on-week against the base currency (dollar) to N1600/$1 at the parallel market.”

The analysts at Afrinvest noted that the spread between the NAFEM and parallel rates sustained its streak for the second week though weekly average declined 98.8 per cent to N27.40. “In the week ahead, the Naira is likely to trade within a similar band across FX segments, supported by intensified regulatory spotlight,” they said.

On the naira, the CBN Governor, Olayemi Cardoso, said the MPC, had at their last meeting in February, deliberated on various distortions in the foreign exchange market, including the activities of speculators, putting pressure on the exchange rate with high pass-through to inflation.

He said members were, however, convinced that the reforms in the foreign exchange market would yield the desired outcome in the short to medium terms.

“Some of these reforms include the unification of the foreign exchange market, promotion of a willing buyer willing seller market, removal of all limits on margins for International Money Transfer Operators remittances, introduction of a two-way quote system and the broad reforms in the Bureaux de Change segment of the market to restore stability, enhance transparency, boost supply, and promote price discovery in the NAFEM,” he said.

Part of the steps taken by the CBN to attract foreign capital include the significant raise of the yields on T-Bills, which pushed many investors to switch from bonds to T-bills.

Already, the bonds market have witnessed sell-offs as investors hunt for better returns. Investors’ appetite dwindled last week, following the shift in focus to T-bills and Savings bonds.

“This led to negative performance across all trading days, except for a positive showing on Friday, pulling the average yield higher by 59bps week-on-week to 17.7 per cent. The bearish outing reflected across all tenors, leading to a yield uptick across the curve, with selloffs more pronounced on the long-end as yield advanced 93 basis points, while the short and mid-end bonds notched gains of 36bps and 24 basis points week-on-week,” the report said.

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