This is the lowest decline in inflows since April 2021 when forex inflow into the Investors & Exporters Window (IEW) sharply dropped to $564.20 million.
Latest data obtained from FMDQ indicated that inflows from local sources dropped two-year low by -55.6 per cent month-on-month (m/m) to $533.20 million while foreign inflows declined by -72.4 percent month-on-month to $80.60 million in April 2023.
In its weekly market update, analysts at Lagos-based Cordros Securities Limited attributed the underwhelming inflows of forex to three major factors which include FX liquidity constraints, an overvalued currency, and the absence of significant macro reforms.
In addition to these factors, the experts pointed out that the forex liquidity condition was also driven by lingering global uncertainties and higher global interest rates, limiting foreign inflows to the economy and stressing that “foreign investors will need some convincing actions as regards flexibility and clarity in the FX framework going forward.”
On local inflows, there were remarkable declines across the inflows from Non-bank corporates (-54.3 per cent m/m), Exporters (-34.3 per cent m/m), CBN (-89.9 per cent m/m), and Individuals (-85.2 per cent m/m), signifying significant caution on the part of forex market participants.
Commenting on the situation, the analysts at Cordros Securities noted that “over the short-to-medium term, we expect FX liquidity conditions to remain frail in the absence of reforms to attract US dollar inflows into the economy.”
Also commenting, Evans Ashagwu, a local investor in fixed-income instruments as well as the equities market attributed the sharp decline in inflows to political uncertainties around the 2023 presidential elections.
“Investors, I think, are staying aloof to see the dilemma around the election outcome resolved. No knowledgeable will throw his hard currencies into an economy full of uncertainties. Everyone is looking to see the whole election issues resolved to know the direction of the economy,” said the investment expert.
Meanwhile, total turnover at the I&E window (as of May 4, 2023) declined by 36.8 per cent week to date to $206.79 million, as trades were consummated within the N460.00 – N478.82 per US Dollar band.
The Naira appreciated by 0.2 per cent to N462.23 per US Dollar at the I&E window. In the Forex market, the local currency was flat at the 1-month (N469.74 per US Dollar) contract but depreciated across the 3-month (-0.2 per cent to N496.97 per Dollar), 6-month (-2.7 per cent to N540.64 per Dollar) and 1-year (-0.5 per cent to N568.29 per Dollar) contracts.(insidebusiness.ng)
