In a significant development for Nigeria’s economy, foreign investors have injected $822.6 million through the Nigerian Autonomous Foreign Exchange Market (NAFEM) window.
This window, established by the Central Bank of Nigeria (CBN) in 2017, serves as a pivotal trading segment facilitating forex transactions for investors, exporters, and end-users. Its mechanism allows for trades at exchange rates determined by prevailing market conditions, ensuring efficient price discovery in the forex market.
According to a recent report by Afrinvest West Africa Limited, this influx of foreign capital represents year-to-date net inflows through the NAFEM window, underscoring the CBN’s efforts to attract foreign exchange. The report highlights a 41.4% improvement in activity levels at the NAFEM window, reaching $421.6 million for the week. Additionally, it notes a 4.9% and 5.3% depreciation of the naira against the dollar at the NAFEM window and parallel market, respectively.
Analysts at Afrinvest observe that the spread between NAFEM and parallel rates has sustained its streak for the second consecutive week, albeit with a decline in the weekly average. Looking ahead, they anticipate the naira to trade within a similar band across FX segments, supported by intensified regulatory oversight.
Speaking on the matter, CBN Governor Olayemi Cardoso highlighted deliberations by the Monetary Policy Committee (MPC) on various distortions in the foreign exchange market, including speculative activities. Cardoso expressed confidence that ongoing reforms, such as unification of the forex market, promoting a willing buyer-willing seller model, and enhancing transparency in the Bureaux de Change segment, would yield positive outcomes in the short to medium term.
In his words: “Some of these reforms include the unification of the foreign exchange market, promotion of a willing buyer willing seller market, removal of all limits on margins for International Money Transfer Operators remittances, introduction of a two-way quote system and the broad reforms in the Bureaux de Change segment of the market to restore stability, enhance transparency, boost supply, and promote price discovery in the NAFEM,”.
The CBN’s efforts to attract foreign capital have also seen a significant raise in yields on Treasury Bills (T-Bills), prompting investors to reallocate from bonds to T-Bills. Consequently, the bonds market experienced sell-offs last week, with investors seeking better returns.
This trend resulted in a negative performance across all trading days, except for a modest recovery on Friday, leading to a 59bps week-on-week increase in average yields to 17.7%.
