Investors boost FX market with $14.4bn in 3 months

…As external reserves rise by $7.4bn in Q1
In the first three months of 2018, the Investors and Exporters (I&E) FX window boosted Nigeria’s Foreign exchange market (Forex) with total liquidity of $14.457 billion, even as Nigeria’s external reserves during the same period gained $7.44 billion, due to the steady increase in global oil prices and increased activity in the special FX window, findings by The Daily Times revealed.

As at close of March trading activities, the I&E window declared transactions turnover of $4.357 billion, which was higher than $3.95 billion recorded in February but lower than $6.1 billion traded in January.

This implies that the I&E forex window had in the first two months in 2018, transacted a whopping $10.1 billion turnover, helping in stabilising the foreign exchange market.

However, at the close of last week trading on Friday, March 30, 2018, the autonomous forex window declared the highest transactions value during the month, with $1.58 billion, higher than $836.01 million sold in the third week, $1.4 billion recorded the preceding week and $540 million exchanged in the first week in March.

The Daily Times checks further showed that the first trading day of the just conclude week recorded the lowest figures of $259.27 million, which represented the weakest figure traded during the week but significantly stronger than $98 million exchanged on corresponding day in the previous week.

But the second trading day moved up to $277.01 million and further strengthened to $387.79 million, however, sustained the same traded value following day before closing the week with a depreciated figure $270.04 million.

Further breakdown, however, indicated that the I&E FX window, at the close of the third week in March, stood at $836 million, while the second week during the same month traded transactions’ value at $1.4 billion, which rode on the increased confidence over Nigeria’s resurging external reserves.

This showed that the activity level in I&E Window is an improvement of 162.3 per cent ($876.1 million) from $540 million recorded in the preceding week of the month.

The development has also seen the apex bank reduce its level of weekly interventions in the forex market without causing shortage of supply, as only one auction worth $210 million across all segments was recorded during that week.

Figure obtained showed that I&E FX window between April and December 2017, recorded total turnover of$25.65billion, with September and November declared the highest transactions turnover, while April, the month that the CBN created the special FX window, recorded the lowest turnover figure.

But data from FMDQ OTC securities Exchange revealed that $0.61 billion or N1865.66 billion total turnover was traded in April and increased by 114 per cent to $1.32 billion or N403.92 billion in May.

Total turnover on I&E FX window in June and July were $1.63 billion or N498.78 billion and $1.86 billion or N569.16 billion respectively.

Data from FMDQ OTC stated that total turnover gained momentum in August 2017, as newly created window reached $3 billion per month.

According to the data, I & E FX window in August was estimated at $3.54 billion or N1.08 trillion, while in September, total trade on the I & E FX window closed at $4.61 billion or N1.41trillion.

For October, it dropped to $4.30 billion or N1.32 trillion, but the turnover trade on the I & E FX window in November and December were $4.51 billion or N1.38 trillion and $3.27 billion or N1 trillion respectively.

The I& E FX was created by the CBN to boost supply of foreign exchange into the nation’s economy, attract more investments and stabilise the foreign exchange market.

CBN introduced the special window for investors, exporters and end-users of foreign exchange on April 21, 2017 as part of its efforts to deepen the FX market and accommodate all the foreign exchange obligations.

Reacting to the development in an interview, Associate Professor and Head, Banking & Finance department, Nasarawa State University, Prof. Uche Uwaleke, said: “There is no question that the Investors and Exporters window introduced by the CBN sometime in April 2017 was one of the best developments in the foreign exchange market last year.

“It came at a time the market was facing liquidity crisis and foreign investors’ confidence was waning.

“The window helped in no small measure in boosting liquidity and access to forex by creating an autonomous channel where the exchange rate is market determined.

“So, the huge turnover recorded since the introduction of the AFEX points to the strong confidence that investors now have in the Nigerian economy. This measure, supported by the CBN’s sustained intervention, has aided the near convergence of rates across all market segments.

“The first positive sign manifested almost immediately with the parallel market rate dropping from a peak of N520 to a dollar to less than N400 few days after. Capital importation has been on the rise on the back of this forex window and the manufacturing sector has equally benefited going by the Purchasing Managers Index which has been above the 50 points threshold since May last year.

“In addition, the bullish nature of the stock market last year and its impressive performance owe largely to the introduction of the I & E window by the CBN. By and large, the effect on the economy has been salutary.”

Meanwhile, the external reserves opened this year at $38.77 billion to close March 28, 2018 at $46.21 billion, an increase of 19.2 per cent this year.

In February, the foreign reserves added $1.8 billion or 4.44 per cent to $42.92 billion from $40.69 billion it opened while in January, it gained $1.9 billion or 4.95 per cent to $40.69 billion from $38.77 billion it opened in 2018.

Our correspondent checks showed that the price of Organisation of Exporting Countries (OPEC) daily basket price stood at $66.05 a barrel on March 28, 2018.

Global Oil prices continued to rally above $60 per barrel extended to new heights in 2017 with Brent crude climbing to a level last seen in mid-2015, stoking hopes in the industry that the market has finally turned a corner following a three-year slump.

An oil price recovery has been under way since June last year as crude demand finally starts to outpace supply, with Brent rallying by almost 40 per cent to $61 a barrel, as the global oil glut that had built up over the previous three years starts to draw down.

The CBN spokesman, Mr. Isaac Okorafor, had noted the increase in foreign reserves can be attributable to peace in the oil-rich Niger-Delta region of the country, which resulted into increased oil output and earnings.

He had said with the sustained interventions, the apex bank has been able to push foreign exchange demand away from the parallel market into the formal regulated market.

The CBN Governor, Mr. Godwin Emefiele, had projected that the nation may achieve $60 billion foreign reserves in 2019, should this trend persist.

He said increases in the price and shipment of oil, Nigeria’s biggest foreign-currency earner, and improved investor confidence mean the CBN can build its reserves to $60 billion in the next 12 to 18 months, from $40 billion currently.

“Things are looking up. No one ever thought the price of crude would hit $70 in such a short period of time”, he said during an interview with Bloomberg.

Against this backdrop, the Nigerian currency, Naira, against the US Dollar rate was seen at the Investors FX window closed at N360.20 on Friday, the same rate it exchanged on Thursday, despite opening at N359.88 and traded high at N361.35.

The local currency, also, stood steadied against the major foreign currencies at the official Spot market, maintaining the appreciated rate of N305.65 per dollar at the Central Bank of Nigeria (CBN) spot market, which was better than N305.75 sold earlier in the month.

Also, the naira remained stable, trading within a tight band all through the week at N362 per dollar at the parallel market, N508 to the pound and N442 and per Euro, respectively.