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Currency: Monetary reforms are yielding early fruits
(Source: CardinalStone Research, Date: 25-Mar-2024)

Monetary reforms are yielding early fruits

In this report, we assess recent developments in monetary policy, the notable recovery of the Naira, and the resurgence of foreign capital flows.

 

In the last few weeks, the CBN leadership has intensified efforts to restore market confidence and improve communication with investors, which has largely been positive for Nigeria's investment case. To provide context, confidence in the Nigerian FX market has materially improved due to the restructuring of market frameworks, intensifying of hawkish rendition, and the clearing of all legal outstanding FX backlogs.

Investors taking a bet on Nigeria


The payments of FX backlogs and improving carry trade opportunities are piquing investors' interest. Precisely, the cumulative foreign inflows (through FPIs and FDIs) since the beginning of the year are estimated at $2.1 billion, compared to $1.6 billion in 2023. The level of inflow is consistent with Nigeria's robust carry trade vis-a-vis those of major African countries and aided by hawkish monetary policy and the relative stability of the Naira evinced by the 12-month currency forward.


Elsewhere, daily FX turnover"”a measure of liquidity"”has surged to a YtD average of $4.3 billion compared to $2.3 billion in 2023. This notable improvement ties finely with the mentioned inflows of foreign capital and improved intervention by the apex bank in segments of the currency market.

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Regards,


CardinalStone Research

research@cardinalstone.com

CardinalStone Research 
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