US Dollar Inflows to FX Market Slumps 39%

Foreign currency inflows into the Nigeria FX market declined by more than 39% in January 2024 amidst US dollar shortage that has forced the monetary authority to devalued the naira.

Weak sentiment in the financial market has reduce foreign investors’ appetite in sovereign fixed income instruments and other investment options. Total FX inflows, including remittances have been unable to upturn the naira fortune – losing more than 100% in seven months.

According to data from FMDQ monthly report, the total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) declined by 39.3% to USD832.20 million in January.

In December 2023, total inflows into the window was USD1.37 billion. The latest record marked consecutive contraction and the lowest level since July 2023 when inflow of USD 818.70 million was registered, Cordros Capital Limited said in a review.

The breakdown provided shows a broad-based decline across local which represents 84.0% of total inflows and foreign which represents 16.0% of total inflows sources.

In January 2024, inflows from local investors dipped by 38.3% to USD699.00 million from USD1.13 billion in December 2023. The market witnessed 20.9% decline in Exporters forex inflows or supply and Non-Bank Corporates dipped by 52.7% despite growth in the Individuals segment.

In its review note, Cordros Capital Limited noted that there has been no intervention by the CBN for the past three consecutive months. Analysts are of the view that foreign investors have remained on the sidelines due to Nigeria’s FX market inadequacies.

Specifically, inflows from foreign sources came in at a four-month low of USD133.20 million from USD237.10 million in December 2023.

“We expect FX liquidity conditions to remain frail in the near term, although recent CBN reforms to boost liquidity in the FX market could cause a shift over the medium-term”, analysts stated.

Cordros Capital is of the view that foreign inflows will stay below the pre-pandemic level (Q1-20 average: USD1.28 billion) as foreign investors may adopt a wait-and-see approach.

Nonetheless, analysts said they do not rule out the possibility of an improvement in foreign participation over the medium term, to be driven by expected FX inflows as guided by the authorities and CBN’s recent actions aimed at clearing its FX backlogs. #US Dollar Inflows to FX Market Slumps 39%#

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