Will Nigeria sustain FX inflow momentum?

The Central Bank of Nigeria has reported a significant rise in total foreign exchange inflows by 20.6% to $27.8 billion, with a notable contribution from autonomous sources which saw a 47.5% increase to $16.27 billion in the fourth quarter of 2024. Olatomiwa Maiyegun, Officer of Structured Products and Originations at Stanbic IBTC, shared insights on the recent developments in the foreign exchange market during an interview with CNBC Africa. Maiyegun highlighted the fluctuations in the Naira's trading range, which has been relatively stable around 1.530 to 1.550 in the last two weeks. However, recent events such as the drop in oil prices to $64 per barrel have triggered heightened demand for foreign exchange, leading to pressure on the Naira. Investors are concerned about Nigeria's ability to sustain projected revenue amidst lower oil prices and potential market deficits. The Central Bank of Nigeria swiftly intervened in the market by selling $110 million in an attempt to stabilize the Naira's exchange rate. Despite this intervention, the Naira faced upward pressure and reached 1.580 against the dollar, with expectations of hitting 1.6 in the near future due to ongoing market uncertainties. The ongoing challenges in the foreign exchange market are further exacerbated by external factors such as OPEC's plans to increase oil supply, which could lead to oversupply and drive oil prices lower. The combination of weaker demand and tariff implications has prompted foreign investors to reconsider their positions, potentially leading to more pressure on the Naira. The Central Bank's ability to sustain interventions and defend the Naira within a trading band of 1.5 to 1.6 remains crucial in ensuring market stability. Maiyegun emphasized the importance of net inflows into the market, noting a gradual decline in the central bank's contribution from 75% to 10% compared to pre-COVID levels. Foreign portfolio investors and direct investors have contributed $2.3 billion in January, $2 billion in February, and $700 million in March, with a slight dip attributed to oil price fluctuations. Despite these challenges, autonomous sources such as International Oil Companies (IOCs) and International Money Transfer Operators (IMTOs) have played a significant role in supporting the market and building net reserves. While the Central Bank continues its efforts to defend the Naira through interventions and reserve management, concerns loom over the sustainability of these measures amidst economic uncertainties. The market's reliance on autonomous sources and the potential impact of external factors on exchange rates remain key considerations for stakeholders. As the Naira faces continued pressure and risk-off sentiments, market participants are closely monitoring developments and expecting proactive responses from regulatory authorities to navigate the evolving landscape.