Amid Naira struggles, total inflows into the Investors & Exporters (I&E) window declined for the second consecutive month, falling by 17 per cent month-on-month (m/m) to $679.60 million – the lowest level since October 2022 ($676.80 million).
Data obtained from FMDQ, the breakdown provided showed that inflows declined across the domestic and foreign sources. Specifically, local inflows (93.1 per cent of total inflows) declined by 16.8 per cent m/m to $633.00 million, primarily due to the decline in inflows from exporters (-35.9 per cent m/m) and non-bank corporates (-37.0 per cent m/m).
Similarly, inflows from foreign sources remained underwhelming, declining further by 19.5 per cent m/m to $46.60 million (June: $57.90 million) as foreign investors remained cautious about returning in droves despite the FX market liberalisation, as FX backlogs remain un-cleared.
However, crude oil prices recorded a monthly gain in August as a drawdown in US crude inventories (declined by 10.6 mb) and production cuts by the Organization of Petroleum Exporting Countries and its allies (OPEC+) overshadowed concerns of weaker demand due to stalling economic recovery especially in China. As such, the average Brent crude oil price rose 6.9 per cent m/m to $84.64/bbl.
On the home front, the CBN foreign reserves was flattish m/m at $33.2 billion, as month end accretion of $333.0 million offset outflows.
Meanwhile, the official and parallel market segments traded in opposite directions amid news of NNPCL-Afrexim $3.0 billion loan agreement and the publication of CBN’s outstanding financial report. At the I&E window, the Naira appreciated by 5.1 per cent to N740.38/$1, with total turnover at the window (as of 31 August 2023) decreasing by 12.1 per cent WTD to $367.47 million, as trades were consummated within the N701.00 – N800.00/$ band. On the other hand, the parallel market rate lost 5.4 per cent m/m to N920.00/$1.
Commenting on the development, analysts noted that there has not been any positive trigger to stem the slide of the Naira. Daily Sun had reported that the Naira emerged as the worst performing African currency in three months. To make it worse, it is even missing in the list of the top ten foreign currencies in the market as Tunisian Dinar, Libyan Dinar, Moroccan dirham, Ghanaian Cedi, Botswana Pula and Seychellois Rupee emerged top performing currency in Africa. Others include Eritrean Nakfa, South African Rand, Zambian Kwacha and Egyptian Pound.
Analysts at Cordros Research, said that FX liquidity conditions will remain frail in the near term. “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”.
For their part, analysts at Afrinvest said, “In September, we expect the Naira to trade within a similar band across market segments as FX imbalance lingers on the back of weak FX reserves and a sustained high demand in the parallel market”.
SOURCE: THESUN
