…Since October, the Central Bank of Nigeria (CBN) has renewed its efforts at solving the challenges stoking the existing FX liquidity constraints.
SAT, DEC 30 2023-theGBJournal|FX liquidity conditions remained weak at the Nigerian Autonomous Foreign Exchange Market (NAFEM) as the efforts geared towards improving FX supply have not been convincing enough more so that the FX reform pace has been relatively slow.
Specifically, the average monthly inflows into the NAFEM as of 10M-23 settled at USD1.12 billion – 61.4% lower than the pre-pandemic average monthly inflows (2019FY: USD2.90 billion) and 2.2% below the monthly average in 10M-22 (USD1.15 billion).
Nonetheless, we highlight that non-bank corporates (47.1% of local inflows) contributed the most to local inflows in the review period, increasing by 13.3% y/y to an average of USD456.19 million per month.
Elsewhere, foreign investors remained on the sidelines, as they remained unconvinced about the reforms from policymakers, more so that domestic interest rates were uncompetitive for most parts of the year.
As a result, in 10M-23, the average monthly inflows from foreign investors settled lower by 14.6% y/y to USD152.05 million (10M-22: USD178.03 million).
Since October, the Central Bank of Nigeria (CBN) has renewed its efforts at solving the challenges stoking the existing FX liquidity constraints.
Notable measures include clearing parts of its outstanding FX backlogs, tightening financial system liquidity with CRR debits and OMO actions, indirectly increasing domestic interest rates, and tolerating more flexibility at the NAFEM.
As a result, we expect FX liquidity conditions to improve in 2024FY rather than 2023FY, albeit still frail relative to historical standards, considering the CBN’s current momentum on FX reforms.
Consequently, if the recent convincing actions by the policymakers to turn the tide are sustained, we expect the local currency pressures to ease in 2024FY.
Nonetheless, we expect foreign investors to be keenly watching the development in the FX space with regard to the expected FX inflows as guided by the authorities, CBN’s recent actions in clearing its FX backlogs, and firm direction of short-term interest rates.
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