Turnover in Fixed Income, Currency Markets Decline by 8.8% Amid CBN Cut in FX Interventions

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    Turnover in the Fixed Income and Currencies, FIC, markets dropped by 8.8 per cent to N164.52trillion in first 10 months of 2021 from N180.49 trillion in prior 10 months of 2020 over Central Bank of Nigeria, CBN, reduced interventions in the foreign exchange market.

    The FIC markets on FMDQ Exchange comprises of foreign exchange, Treasury bills, OMO bills, CBN special bills, Federal Government of Nigeria bonds, other bonds and money market instruments.
    Analysis of trading activities in the FIC markets of the FMDQ showed that the segment started the year on a weaker proportion but picked up between September and October of 2021.

    Specifically, turnover at FIC markets of FMDQ in January 2021 was at N13.03trillion, a decline of 44per cent Year-on-Year (YoY) performance from N23.19 trillion reported in January of 2020.
    In the following month, the turnover at FIC markets closed at N17.74trillion from N23.47 trillion in February 2020, while in March, FMDQ reported 23.8 per cent YoY decline in FIC markets to N19.55trillion from N25.66trillion reported in March 2020.

    However, in August 2021, FMDQ disclosed that turnover at the FIC markets traded flat at N14.26trillion but increased by 70.7 per cent YoY to N24.03trillion in September 2021 from N14.07trillion in September 2020.
    The CBN had in its report for the month of August said the foreign exchange inflow to the economy increased due to improved inflow through the bank.

    According to the CBN: “Aggregate foreign exchange inflow into the economy increased by 48.2 per cent to US$9.85 billion in August, relative to the $6.98 billion in July. The increase reflected higher inflow through the CBN, due to the additional SDR allocation of $3.34 billion from the IMF. The 20.7 per cent rise in autonomous inflow also contributed to the increase in aggregate inflow in August, driven, majorly, by increased invisible purchases.
    “Foreign exchange outflow through the economy increased by 3.3 per cent to $3.54 billion in August, due, mainly, to the 8.8 per cent rise in the outflow through the Bank, on account of increased interbank sales and Swap transactions.

    “Autonomous outflow dropped by 15.6 per cent to $0.65 billion in August, compared with $0.77 billion in the preceding month, due to a decline in both visible and invisible imports.
    “Consequently, the economy recorded a net inflow of $6.31 billion in August, compared with $3.55 billion in the preceding month. A higher net inflow of $2.54 billion was recorded through the Bank, compared with $0.66 billion in July.”

    In addition, turnover at the FIC markets in October 2021 grew by 6.4 per cent in YoY performance to N17.21trillion from N16.17 trillion recorded in prior period of 2020.
    THISDAY gathered that the decline recorded at foreign market transactions of the FMDQ market impacted on the overall FIC markets transactions in the months under review.

    The foreign exchange market primarily contributed 28.6 per cent of the total FIC markets in 10 months of 2021 as against 31.4 per cent recorded in 10 months of 2020.
    THISDAY learnt that the reduced apex bank intervention can be felt in the total foreign exchange turnover in 10 months of 2021, dropping by 16.3 per cent YoY.

    THISDAY investigation revealed that total foreign exchange turnover dropped to N47.06trillion between January and October 2021 as against N56.22trillion reported by the FMDQ Exchange in the prior 10 months of 2020.
    Analysts attributed the decline to low FX supply to the specialized investors and exports window to weak intervention by the apex, stressing that the inflow in foreign exchange was another major contributing factor.

    The Vice President, Highcap Securities Limited, David Adnori, said the decline in foreign exchange market turnover between January and October of 2021 was as a result of scarcity caused by the existing challenges of COVID-19 virus.

    According to him: “A lot of the transactions in the foreign exchange market went to the parallel market that comes with higher price and the major reason for this is availability.”
    He said the global trade has not fully recovered from the COVID-19 pandemic lockdown, leading to weak supply of foreign currencies into the Nigeria’s market.

    He added that: “A lot of Nigerians in the Diaspora who used to send remits are also faced with the impact of the pandemic. Although, we have seen steady increase in crude oil price but the backlog of hard currency demand from CBN has also affected supply.

    “Foreign investors are also showing interest due to challenges in their market. In addition, the federal government is also committed to foreign currency spending and it also contributed to supply.”

    On his part, analyst at PAC Holdings, Wole Adeyeye also attributed the decline in turnover trade at the FMDQ foreign exchange market to scarcity.
    THISDAY also laernt that naira closed at an average of $/N415.10 in October 2021 from an average of $/N385.90 in October 2020.

    FMDQ had in its monthly report for October 2021 said: “In the FX Market, the Naira depreciated against the Dollar, losing 0.57 per cent ($/N2.35) to close at an average of $/N415.10 in October 2021 from $/N412.75 recorded in September 2021.

    “The CBN Official Spot $/N exchange rate closed at an average of $/N379.05 in October 2020, representing a $/N0.01 depreciation of the exchange rate from $/N379.04 recorded in September 2020.”
    The Governor of the CBN, Godwin Emefiele recently announced that naira has depreciated at the official market to N410 against the dollar.

    Emefiele said the drop in crude oil earnings and the associated reduction in foreign portfolio inflows significantly affected the supply of foreign exchange into Nigeria.
    He said, “In order to adjust for the decrease in the supply of foreign exchange, the naira depreciated at the official window from N305/$ to N360/$ and now hovers around N410/$.’’

    “Despite the rebound in economic activities, the fragile recovery will keep the economy operating below full capacity. The emerging food supply shocks associated with the drag in production, due to insecurity situations across the country, combined with the speculations on increase in the price of PMS and electricity tariff, will continue to have knock-on pressures that will keep headline inflation above desired levels.

    “Inflation rate is nonetheless expected to continue to decelerate in the short-term. The outlook for the external sector remains stable, albeit susceptible to further external shocks. This is premised on the expectation of sustained improvement in crude oil prices. The ongoing policy on diaspora remittances is expected to attract foreign exchange inflow.

    “Despite the optimism, downside risks to the outlook remains. Concerns over the emerging third wave of the COVID-19 in Europe and Asia could disrupt global supply chain and crude oil demand. In addition, vulnerability to foreign exchange pressure, rising inflation, insecurity across the country, infrastructure gap, and constrained fiscal space, remain a challenge”, the CBN added.

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