Foreign Investors Commits $822.6 Million in NAFEM

It has been announced that foreign investors have committed $822.6 million to the country’s economy through the Nigerian Autonomous Foreign Exchange Market (NAFEM) window.

Last weekend, Afrinvest West Africa Limited, a financial services firm, released a report. The report stated that the foreign capital inflows represent year-to-date net inflows through the NAFEM window, resulting from CBN’s efforts to attract foreign exchange.

It said: “Across the FX market this week, the naira remained stable and traded within a similar band as the previous week. At the NAFEM Window, activity level improved 41.4% ($473.1 million) to $421.6 million, and the price currency (naira) fell 4.9% week-on-week against the base currency (dollar) to N1627.40/$1.00. Similarly, the price currency (naira) dipped 5.3 percent week-on-week against the base currency (dollar) to N1600/$1 at the parallel market.”

The analysts at Afrinvest revealed that the spread between the NAFEM and parallel rates sustained its streak for the second week, though the weekly average declined 98.8% to N27.40. “In the week ahead, the naira is likely to trade within a similar band across FX segments, supported by an intensified regulatory spotlight,” they said.

Talking about the naira, the CBN Governor, Olayemi Cardoso, said the MPC discussed more measures to address the forex crisis at their last meeting in February. This included the activities of speculators, which put pressure on the exchange rate and had a high pass-through to inflation.

He noted that members were, however, convinced that the reforms in the foreign exchange market would yield the desired outcome in the short to medium term.

“Some of these reforms include the unification of the foreign exchange market, the promotion of a willing buyer, willing seller market, the removal of all limits on margins for international money transfer operator remittances, the 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,” he said.

One step the CBN took to attract foreign capital was significantly raising the yields on T-bills, which pushed many investors to switch from bonds to T-bills.

The bond market has witnessed sell-offs as investors hunt for better returns. Last week, investors’ appetite dwindled following the shift in focus to T-bills and savings bonds.

“This led to negative performance across all trading days, except for a positive showing on Friday, pulling the average yield higher by 59 bps week-on-week to 17.7%. The bearish outing was reflected across all tenors, leading to a yield uptick across the curve, with selloffs more pronounced on the long end as yield advanced 93 basis points, while the short and mid-end bonds notched gains of 36 basis points and 24 basis points week-on-week,” the report said.

Frequently Asked Questions (FAQs)

What is NAFEM all about?

The NAFEM is the market trading segment for investors, exporters, and end-users. It allows forex trades to be made at exchange rates determined based on prevailing market circumstances, thus ensuring efficient and effective price discovery in the forex market.

When was NAFEM established?

The NAFEM was established by the Central Bank of Nigeria (CBN) via a circular dated April 21, 2017.

What is the full meaning of NAFEM?

NAFEM means Nigerian Autonomous Foreign Exchange Market