I&E FOREX WINDOW: FOREIGN INVESTORS INCREASE DOLLAR INJECTION BY 94% TO $3.5BN
Dollar inflow from foreign investors through the Investors and Exporters (I&E) foreign exchange window rose by 94 percent in the first two months of the year. In a bid to take advantage of high interest rate on government securities (Treasury Bills and FGN bonds) and low share price of companies listed on the Nigerian Stock Exchange (NSE), foreign investors injected $3.5 billion through the I&E window from January to February.
This represented 94 percent increase when compared with the $1.8 billion injected in the last three months of last year (fourth quarter of 2018, Q4’18). Consequently, foreign investors accounted for 63 percent of Dollar inflow into the I&E in January and February, up from 23 percent in Q4’18. Financial Vanguard analysis also showed that average monthly Dollar inflow by foreign investors into the window rose from $600 million in Q4’18 to $1.75 billion in the first two months of 2019.
Further analysis however revealed that the Dollar inflow from foreign investors was dominated by Foreign Portfolio Investment (FPI), also known as hot money, which accounted for 88 percent while Foreign Direct Investment (FDI) accounted for 12 percent of the inflow. From January to February, foreign investors injected $3.07 billion for FPI, up from $1.63 billion in Q4’18. Similarly, dollar inflow for FDI rose to $430 million between January and February, up from $170 million in the last quarter of 2018 (Q4’18).
Meanwhile the Naira last week appreciated against the Dollar in the in the I&E window and in the parallel market even as the Central Bank of Nigeria (CBN) sustained its weekly foreign exchange intervention with injection of $479.92 million. In the I&E window, the Naira appreciated by 61 kobo last week while it also appreciated by 50 kobo in the parallel market. Data from FMDQ showed that the indicative exchange rate for the I&E window dropped to N360.42 per Dollar last week from N361.03 per dollar the previous week, translating to 61 kobo for the Naira. The live exchange rate platform of the Association of Bureaux De Change Operators of Nigeria (ABCON), naijabdcs.com, also showed that the parallel market exchange rate dropped to N358 per Dollar last week Friday from N358.5 per Dollar the previous week, translating to 50 kobo appreciation for the naira.
In bid to sustain the stability of the Naira, the CBN last week, intervened twice in the interbank foreign exchange market. On Tuesday, the Apex Bank injected $210 million, with $100 million allocated to the wholesale segment, $55 million to the SME window, and $55 million for invisible purchases. On Friday, the CBN injected $269.92 million and CNY 31.34 million in the Retail Secondary Market Intervention Sales (SMIS) of the foreign exchange market.
Director, Corporate Communications Department, CBN, Mr. Isaac Okorafor who confirmed the additional injection said: “The Dollar interventions were for customers in the agricultural, airlines, petroleum products and raw materials and machinery sectors, while the CNY 31.34 million component was for payment of Renminbi-denominated Letters of Credit for agriculture as well as raw materials.” Analysts disagree on February inflation rate Analysts at Lagos based FSDH Merchant Bank and Financial Derivatives Company Limited (FDC) have disagreed on the direction of the inflation rate in February.
While FSDH analysts projected that the inflation rate declined further in February, analysts at FDC projected that the inflation rate rose during the month. Their projections is coming ahead of this week’s release of data for inflation rate in February by the National Bureau of Statistics (NBS). “FSDH Research expects the February 2019 inflation rate to drop marginally to 11.31 percent from 11.37 percent in January,” said analysts at FSDH Merchant Bank. FDC analysts however differed saying, “Nigeria’s headline inflation is expected to increase marginally by 0.03 percent to 11.4 percent in February, thus, reversing the downward trend recorded in the previous month.
In the last three years, the PMI level in February was higher than in January. This is because of seasonality and a pick-up in activity after Christmas. However, in 2019, we have noticed a decline in the PMI which suggests an aberration in the trend due to elections and political activities. “Our projections also point to an increase in the month-on-month inflation (which is more reflective of current prices).
The index is expected to inch up to 0.81 percent (10.15 percent annualized) from 0.74 percent (9.19 percent annualized) in January. There was a noticeable shift in consumer behaviour in anticipation of elections and in reaction to the postponement.”