FX Inflow Rises as OMO Rates Attract Foreign Investors

There was an increase in US dollar flows from foreign portfolio investors into the market following the Central Bank of Nigeria’s (CBN) recent open market operation auction. The apex bank sold OMO bills at higher rates to attract foreign portfolio investors amidst negative interest yield in the fixed income market.

As a result of a well-saturated forex supply, the Naira made a strong comeback, clawing back value lost through a surge in US dollar demand.  Unfortunately, the exchange rate reverted to the old order after large forex demand by manufacturers and importers eclipsed the volume of foreign currency at the official market during the midweek.

Last week, the Nigeria Autonomous Foreign Exchange market (NAFEM) traded within the range of N475 – N1270 per US dollar but closed at N890.5, according to data from the FMDQ platform. This points towards a depreciation of -2.4% or N21.2, Coronation Research said in a note. In the forwards market, fx traded within the range of N895 – N1298.

The foreign currency forward contract for one month depreciated by -8.5% to close at N983.9 on Friday, and in the 3 months contract, the exchange rate depreciated by -8.1% week on week to close at N1,005.1. The exchange rate worsened in the black market as January import demand began to gain traction. In the parallel market, the Naira closed at an average of N1,265 on Friday.

At the level, the current gap between the NAFEM and the parallel market rate printed at 42%, a decline from 45.1% registered in the past week.  According to data from FMDQ, NAFEM turnover increased by +85.1% or USD300.9 million over the week to USD654.4 million, market data gathered for last week showed.

The NAFEM window recorded an inflow of USD21.88 million as there were no injections made by the CBN for fourteen consecutive weeks, Coronation Research said. However, FPIs accounted for 25.8% of the inflow.  Analysts said this surge from FPIs is partly attributed to improved investment appetite towards CBN’s OMO auctions.

Also, non-bank corporates accounted for 33.2% while inflows from exporters accounted for 36.2%, and others accounted for 4.8%. Last week, the CBN held an OMO auction, offering participants instruments worth N300.00 billion. This offer was split into N75.00 billion for the 97-day, N75.00 billion for the 181-day, and N150.00 billion for the 363-day bills.

The subscription level at the auction settled at N414.20 billion, translating to a bid-to-offer of 1.4x, with the eventual allotment amounting to N357.20 billion. Details results showed that N22.00 billion allotment was made for the 97-day, N35.20 billion for the 181-day and N300.00 billion for the 363-day.

The 97-day OMO bills attracted 10.50% while the spot rate for 181-day bills rose to 14.00% from 12.00%, and OMO bills for 363-day were sold to investors at the spot rate of 17.75%, which represents a steep increase from 15.00%. #FX Inflow Rises as OMO Rates Attract Foreign Investors Nigeria Eurobond Slumps after CBN Resumes OMO Auction