Naira Strengthens to N1251 as FX Inflows Rise 42%
The exchange rate outlook on the naira has turned positive with the expectation that the local currency will continue to beat the US dollar across the forex market.
The exchange rate appreciated to N1251.05 versus the US dollar, according to data from the FMDQ Securities Exchange. Goldman Sachs forecasted that the exchange rate will appreciate to N1200 over 12 months.
In the just concluded week, the Nigerian naira closed at N1251 as the local currency’s dramatic gaining streak uneased foreign currency speculators in the economy.
Nigerian naira has continued to gain value across foreign exchange markets, appreciated by 22% in March 2024. The Central Bank of Nigeria (CBN) forex reform has raised confidence levels at official and unofficial markets previously abandoned by the authority.
In its latest update, FMDQ Securities Exchange revealed that total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) increased by 41.7% in March to USD 3.75 billion from USD2.64 billion in February.
Analysts at Cordros Capital Limited said the amount is the highest level seen at the official window since March 2019 when FX inflows registered at USD6.07 billion. Naira Suffers Big, CBN Goes Ballistic Against FX Whale
“We attribute the outturn to the higher inflows across local (59.0% of total transactions) and foreign sources (41.0% of gross transactions)”, the investment firm said in its update.
Analysing the breakdown, it was noted that FX inflows from local sources increased by 43.2% to USD 2.21 billion in March from USD 1.54 billion. The surge was driven by higher accretions from Individuals, Non-Bank Corporates, and Exporters segments.
FX inflows or remittances from individuals rose by about 406% in 30 days while non-bank US dollar supply rose by about 158% over the same period. US dollar volume from exporters rose by 14.6%.
FX inflow from the CBN declined by 65.7% in March, according to analysts’ commentary notes. Analysts also reported that collections from foreign sources surged by 39.6% to USD1.54 billion in March versus USD1.10 billion recorded in February.
This translates to a 50-month high. Foreign investors have been reacting positively to the recent CBN initiatives and increased FX interventions aimed at ensuring liquidity and stability within the FX Market.
Overall, total inflows into the NAFEM window averaged USD2.47 billion in the first quarter of 2024, a steep surge compared with USD1.34 billion in the fourth quarter of 2023 and USD1.09 billion in Q1-2023.
“In the near term, we anticipate improvement in FX liquidity conditions, although still weak relative to historical standards.
Sustained forex market interventions have bolstered investors’ confidence, and reduced speculative activities and market distortions. It has also improved liquidity in the FX market.
Noting this development, analysts anticipate sustained improvement in foreign participation over the short term. Elsewhere, Nigeria’s FX reserves decreased by USD317.95 million to USD33.51 billion.
