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Published On: Mon, Jul 17th, 2017

Resurgent naira boosts investor confidence


Renewed investor confidence in the Nigerian foreign exchange market and the Central Bank of Nigeria’s (CBN) continued interventions have eased pressure on the naira as the country’s currency appreciated by 3.43 percent on the Nigerian Autonomous Foreign Exchange Market (NAFEX) to N362.80 on Friday from N375.70 when the window was launched on April 21, 2017.

Over $3.83 billion has been exchanged at the NAFEX over the last three months, while CBN intervention in the forex market has injected over $7.8 billion since aggressive intermediation in February 2017. Before CBN intervention the naira had slumped to N525 to a dollar in the parallel market. But Pound and Euro held up at N472 and N420 respectively at alternate FX market on Friday.

Traders note that there has been a steady convergence between the different segments of the market over the last three months, especially between the NAFEX and the parallel market. The currency was stable at the parallel market appreciating by N1 to $/N367 compared with $/N368 it exchanged for between Tuesday and Thursday last week.  The British Pound and Euro also traded at £/N397.67 and €/N350.35 respectively as the naira dipped 0.44 percent and 0.32 percent against both currencies respectively at the close of business on Friday.

“Confidence is gradually returning to the foreign exchange market,” says Dr Vincent Nwani, Director, Research and Advocacy, Lagos Chamber of Commerce and Industry (LCCI). According to him, “the stock exchange year-to-date return is about 23 percent. Last year it was about -6 percent, which shows that foreign investors who had long left the market are straggling back.”

He asserts that with the market becoming more liquid, investors who had money outside the country are beginning to bring them back. “Liquidity of foreign currency has returned, though there are concerns that if oil prices go down again or the Niger-Delta militants strike, the forex problem may return,” said Nwani.

The intervention of the CBN in the forex market has helped ease pressure on the naira and the creation of NAFEX has also assisted in improving investor confidence in the system, said Moses Ojo, analyst at Panafrican Capital Plc.

“It seems investors are comfortable with the new window and we have seen a lot of participation in the I&E window,” he observes. According to him, “from an average weekly transaction of between $3 million and $40 million, these days we see transactions up to $400 million in that segment of the market.”

Analysts believe the naira may continue to strengthen against other currencies if crude oil prices continue to appreciate and the apex bank sustains the injection of forex into the market. Crude oil export which accounts for over 90 percent of Nigeria’s foreign exchange needs has been stable since the turn of 2017. Brent price was up 1.1 percent to $48.96 per barrel on Friday, while Light crude also appreciated 1.2 percent to $46.64.

Mr Andrew Esene, Research analyst, Futureview explained that there are now more suppliers of forex than buyers in the NAFEX window, which has helped reduce the pressure on the naira.

The influx of liquidity in the country’s foreign exchange market enables the apex bank to clear the backlog of unmet demands and manufacturers could just walk into their banks and put in Letters of Credits (LCs) and have funded without hassles.

The introduction of the NAFEX Window has boosted foreign investors’ confidence that they could easily exit any time they want to, Victor Ukapai, analyst with Focus Bank based in Lagos noted. He added that the platform allows sellers of forex to match up with buyers without any intermediary.

Over $380 billion foreign inflow has come into Nigeria since January, which was a result of the decision of the apex bank to allow market forces determine the value to the naira.

“The Purchasing Manager Index (PMI) also whichrose to 52.9 in June of 2017 from 52.5 in May, shows there is more forex liquidity in the country,” he enunciated.

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