The naira has seen steady appreciation since the Eurobond sales and the introduction of the Electronic Foreign Exchange Matching System (EFEMS) on Monday.
Data from the Central Bank of Nigeria show that the naira, on Wednesday, appreciated to N1,608/$1 at the Nigerian Foreign Exchange Market (NFEM). This is from N1625/$1 on Tuesday and N1660 on Monday.
Analysts have projected that this appreciation will likely remain till early next year.
A source who wants to be anonymous said that the gains the naira has witnessed stem from the transparency in the foreign exchange market due to the EFEMS, boosting confidence in the market.
“This transparency has shown that the banks had more liquidity (dollar supply) before the launch of the platforms,” the source said.
On Monday, the CBN kick-started the EFEMS, an electronic platform introduced to tackle speculation and improve transparency in Nigeria’s FX market. It automatically matches buy and sell orders, promoting fairness and efficiency in FX trading. Financial experts have expressed optimism about EFEMS’ potential to address persistent challenges affecting the naira and Nigeria’s FX reserves.
The EFEMS system allows authorised dealers, including commercial banks, to place buy and sell orders in real-time. Transactions are automatically matched based on predetermined rules, ensuring swift execution and real-time visibility for market participants and regulators.
Similarly, Gbolohan Ologunro, portfolio manager at FBNQuest, said that the country has seen more dollar inflows as Foreign Portfolio Investors (FPIs) have been quite active in the foreign exchange market and that’s because the yield on one-year bills has made it more attractive for them to hold more naira assets.
At the last three primary treasury bills auctions, yields have been at record highs, peaking at 30.71 percent, before dropping to 29.75 percent yesterday.
On Wednesday, the one-year NT-bills saw the largest bid this year of about N2.53 trillion.
Uduak Jacob, portfolio manager at Comercio Partner Asset Management, said FPIs have been flooding the market with dollars.
“FPIs have been flooding the market with dollars, in anticipation of an OMO auction. Some even participated in the NTB auction yesterday,” Uduak said.
Yields at recent OMO auctions are at a record high of 32 percent.
Ologunro mentioned that alongside yields which have attracted foreign investors, the newly introduced EFEMS platform has boosted confidence in the FX market.
“If the platform continues to function efficiently and the yields continue to remain at current levels till next year, FPIs will continue to have faith in the naira and will continue to hold naira assets and this will increase dollar inflows.
“These inflows will be sustained by the sales from the Eurobond into the system by January which will likely drive reserves to $45 billion, and continue the naira’s appreciation to February,” Ologunro said
Nigeria revisited the international bond market on Monday and sold $2.2 billion worth of Eurobonds across two tranches after being oversubscribed to the tune of $9.1 billion.
The Federal Government sold $700 million worth of the 6.5-year Eurobond maturing in 2031 at a coupon rate of 9.625 percent and $1.5 billion of the 10-year tenure at 10.375 percent.
Analysts at CSL stockbrokers said in a recent report that on the positive side, the proceeds from the Eurobond issuance, expected to flow into Nigeria’s foreign exchange reserves by December 9, 2024, are projected to boost the reserves to over $42 billion by year-end.
“This increase could provide the Central Bank of Nigeria (CBN) with greater capacity to support the naira in the near to medium term, potentially leading to a modest appreciation of the domestic currency,” the report stated.
