Nigeria’s foreign exchange market received a strong boost in February as dollar inflows rose sharply to $4.37 billion, helped mainly by fresh injections from the Central Bank of Nigeria and increased investments from foreign portfolio investors.
Figures released by FMDQ Securities Exchange over the weekend showed that total dollar inflows into the Nigerian Foreign Exchange Market (NFEM) jumped by 45.4 per cent in February compared to January.
The market recorded $4.37 billion in February, up from $3.01 billion the previous month, the highest level seen in about four months.
A large part of the increase came from local sources within Nigeria. Domestic inflows made up about 52 per cent of the total dollars that entered the market in February.
Money from local players rose sharply to $2.28 billion in February, compared with $1.23 billion recorded in January.
Much of this jump was due to stronger intervention by the central bank. Dollar supply from the CBN surged significantly during the month as the apex bank stepped in to improve liquidity and support trading in the market.
The central bank has continued to play an active role in the foreign exchange market as authorities work to stabilise the naira and restore confidence after recent currency reforms.
Apart from the CBN, other local sources also supplied more dollars into the system.
Dollar inflows from individuals increased sharply during the period, while exporters and importers also brought more foreign exchange into the market. Non-bank companies equally contributed to the rise, though at a slower pace.
Foreign investors also increased their participation, although not as strongly as domestic players.
Total inflows from international sources rose to $2.09 billion in February, up from $1.79 billion in January. This represented about 48 per cent of total inflows during the month.
The improvement from foreign investors was largely driven by foreign portfolio investors (FPIs), who buy Nigerian stocks and government debt instruments.
Portfolio investments increased by about 22 per cent during the month.
Within that category, investment in Nigerian equities recorded the strongest growth, jumping by more than 70 per cent. This suggests that foreign investors showed renewed interest in the Nigerian stock market.
Investment in fixed-income securities such as government bonds also rose by about 21 per cent, reflecting continued demand for Nigeria’s relatively high-yielding debt instruments.
However, not all foreign investment channels improved.
Inflows from other foreign companies declined by about 25 per cent, while foreign direct investment (FDI), which usually involves long-term investments such as factories and infrastructure, dropped by about 21 per cent.
This shows that while short-term portfolio investments are rising, long-term foreign investments into Nigeria are still recovering slowly.
Financial analysts say the recent rise in dollar inflows shows that the central bank’s actions and the return of some foreign investors are helping to improve liquidity in the country’s foreign exchange market.
However, they caution that global economic conditions could still affect foreign investment into Nigeria.
According to analysts at Cordros Capital, foreign inflows may remain moderate in the near term because global investors are becoming more cautious due to economic uncertainties.
For now, though, stronger dollar supply from the central bank and rising portfolio investments appear to be helping stabilise Nigeria’s foreign exchange market and improving the availability of dollars in the system.
The sun
