U.S. Dollar Inflows into FX Market Sinks 87% in 30-Day

U.S. Dollar Inflows into FX Market Sinks 87% in 30-Day

The volume of US dollars supply into the Investors’ and Exporters FX market sunk 87% in July 2023, according to market data from FMDQ.

The slump came amidst FX shortage in the local economy. After 16 weeks of decline, there was an inflow of $331 million into external reserves amidst a rally in the global oil markets.

Total foreign currency inflows into Investors’ and Exporters FX window slumped by about 66% in July, Cordros Capital Limited said in a macroeconomic update sent to investors.

Citing data from FMDQ, analysts noted that total inflows into the official exchange rate window organised by the Central bank declined by 65.7% to US$608.00 million in July from USD1.77 billion in June.

According to the investment firm, the amount is the lowest seen since April 2021 when total inflows printed at USD564.20 million. 

Analysing the breakdown provided, analysts highlight that the decline was on the back of broad-based contraction across both the local and foreign investors.

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It is noted that at the time, local and foreign accounted for 92.3% of total transaction value, according to analysts.

Precisely, inflows from local investors dipped by 60.6% to USD561.00 million in July from USD1.42 billion in June 2023 given the slowdown across the local segments.

The segments that experience a slowdown in inflows into the market include the CBN (-70.0%), Individuals (-51.2%), Non-bank corporates- (-65.6%) and Exporters (-63.9%)

In the same vein, analysts noted that inflows from foreign sources remained underwhelming, decelerating by 86.5% to USD47.00 million from USD 347.30 million as foreign investors remained cautious about returning in their droves despite the FX market liberalisation, as FX backlogs remain uncleared.

Earlier in the month, the Central Bank said Nigeria attracted $1.4 billion into the foreign currency, FX, market following the official devaluation of the local currency.>>>

“We expect FX liquidity conditions to remain frail in the near term, amid the lingering reforms in the FX market. We also anticipate weak foreign inflows in the short term, as foreign investors will likely adopt a wait-and-see approach in the near term as they await the CBN’s actions in clearing its FX backlogs and the direction of short-term interest rates amid high inflation”, Cordros Capital stated.

According to the CBN, credit to the private sector (CPS) increased by 34.6% year on year to N52.81 trillion in June 2023 from NGN39.23 trillion equivalent period in 2022.

“We believe the continuous increase in CPS reflects the impact of improved domestic macroeconomic conditions relative to the previous year and CBN-led interventions in the real sector”, analysts said.

On a month-on-month basis, the CPS increased by 17.9% in June. Meanwhile, the currency in circulation declined by 20.0% year on year to N2.60 trillion in the same period from N3.26 trillion one year ago. This was primarily due to a temporary reduction in the amount of money in circulation in line with the Naira redesigned policy.

Over the short to medium term, Cordros Capital said it expects that the improvement of domestic economic activities and the re-enforcement of the CBN’s limit on the loans-to-deposits (LDR) macro-prudential ratio for deposit money banks (DMBs) will drive the willingness of commercial banks to create risky assets in the short term.

“We also anticipate that the CBN will maintain its intervention programs at a steady pace as the economy expands”.  Analysts projected that the Credit to Private Sector will maintain a double-digit expansion in 2023. #U.S. Dollar Inflows into FX Market Sinks 87% in 30-Day

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