I&E Forex Window attracts $50.73b in 13 months

MPC predicts fragile but promising economic growthThe Investors’ and Exporters’ (I&E) Forex Window has attracted to the economy in 13 months $50.73 billion, a report by FSDH Research has shown.

Prior to the introduction of the I&E Forex window in April 2017  by the Central Bank of Nigeria (CBN), the market and exchange rates were in turmoil. But, in a dramatic turn of events, the acute shortage of forex, which businesses and individuals grappled with, has improved, with banks and bureaux de change (BDCs) now desperately looking for forex buyers.

The window, which offers investors the opportunity to sell dollars at rates of their choice, provided they find willing buyers, has restored confidence to the forex market and boosted the foreign exchange reserves.

The FSDH Research June 2018 Monthly Economic and Financial Market Outlook, said  the  positive  domestic  and  external  environment  will  further lead  to  external  reserves accretion  in  the  short-term  and  this  development  should provide further stability for the foreign exchange rate.

It said the 30-day moving average external reserves increased by 0.36 per cent up from $47.49 billion at end-April to $47.66 billion at May 28, 2018. The month-on-month growth rate recorded in the external reserves was the lowest level since July  2017.  The pressure on demand  from foreign  investors  was  mainly  responsible for the low growth in the external reserves.

“The total turnover at the Investors’ and Exporters’ FX Window (I&E Window) between April 2017 and May 2018 stood at $50.73 billion. The highest amount was recorded in January 2018. Our analysis between August 2017 and May 2018 shows that Nigeria recorded the lowest foreign exchange inflows through the I&E Window in May 2018,” the report said.

It said the  value  of  the  Naira depreciated  further  at  the  inter-bank  and  parallel  markets  in May 2018, compared with April. The demand pressure at the I&E Window occasioned by foreign  investors’  repatriation  of  their  matured  fixed  income  investments  was  largely responsible for the depreciation in the value of the naira.

“The value of the  naira  depreciated month-on-month at the  inter-bank  market to  N305.95/$ as  at end-May  2018,  a  depreciation  of  0.08 per cent  from  N305.70/ $  at  end-April.  The average exchange rate at the inter-bank market also depreciated by 0.06 per cent to stand at N305.80/$ in May, compared with N305.61/$ in April,” it said.

Besides, the value of the naira also depreciated at the parallel market in May to N363.50/$, a drop of 0.14 per cent, compared with April. The average exchange rate at the parallel market also depreciated by 0.29 per cent to stand at N363.90/$ in May, compared with N362.86/$ in April. FSDH Research expects the value of the naira to remain stable in the short-to-medium term,” it said.

The fixed income market analysis for the month of May 2018 shows a net outflow of about N224 billion, compared with a net outflow of about N749 billion in April. The major outflows in May were the Open Market Operation and Repurchase Bills (REPO) of N1.81 trillion, CBN’s Foreign Exchange Sale of  N413 billion, Primary Nigerian  Treasury  Bills  (NTBs) of  N178 billion  and  the  Bond  auction  of N50 billion.

It said a total inflow of about N1.79 trillion is expected to hit the money market from the various maturing government securities and the Federation Account Allocation Committee (FAAC) in June 2018. “We estimate a total outflow of approximately  N781 billion  from  the  various  sources,  including  government  securities  and statutory withdrawal, leading to a net inflow of about N1.01 trillion.

FSDH Research expects the market to remain relatively liquid in June. This may necessitate the issuance of OMO to mop-up the liquidity in the system,” it said.

The research firm expects the inflation rate to drop below the current level. “We believe the yields on the treasury bills may drop marginally from the current levels. However, the yields on the Federal Government of Nigeria Bonds may increase from the current levels as government begins the implementation of the 2018 budget,” it said.

FSDH Research said the equity market is approaching an oversold position, hence, there  may  be  a  reversal  of  the  current  downward  trend  very  soon  as  the  economic environment continues to improve.

“The factors that should drive the performance of the equity market include stability in the foreign exchange market due to positive developments in the crude oil market, bargain hunting investors taking advantage of current prices, strategic positioning ahead of half year 2018 results and repositioning of portfolios as a result of the drop in yields on treasury bills,” it said.

Investors are advised to take strategic positions in the stocks that pay interim dividends and have prospect for capital appreciation from current levels. Some stocks in the consumer goods, building materials, petroleum marketing and banking sectors are attractive at their current prices.

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