External reserve set to hit 30-month high of $32bn

NIGERIA’s external reserve is set to hit a 30-month high of $32 billion by the end of this month.Data from the Central Bank of Nigeria (CBN) showed that the external reserve rose to $31.55bn on August 16, from $30.84bn on July 31, representing increase of $710 million in 16 days.

This trend is expected to persist in the second half of August driving up the reserve to the $32bn mark.

The external reserve had been below $32 billion since February 2015, 30 months ago, from where it declined steadily to $23.89bn on October 19, 2016. Analysis revealed that from October 19, 2016, the reserve commenced a bumpy, but steady upward trend, rising by $7.66b or 32 per cent to $31.55bn on August 16 this year. Also the reserve has risen by $4.56 billion or 17 per cent since the beginning of 2017.

The steady upward trend in the reserve especially since July 7, 2017 was buoyed by improved foreign exchange inflow occasioned by positive developments in crude oil price since late last year, dollar inflow from foreign portfolio investors facilitated by the Investors and Exporters (I&E) window introduced in April this year, as well as reduction in dollar sale through the CBN’s forex intervention.

Also, about $5b has been attracted through the I&E window since inception. According to the CBN, $4 billion has been traded in the window as at Thursday, August 10, 2017, while data from Financial Market Dealers Quote (FMDQ) showed that about $1 billion was traded in the window from Friday August 11 to last week Friday, August 18. Further analysis revealed that $925.38 million was traded in the window from Monday to Friday last week.

Naira appreciates to N359.98 in NAFEX

Reflecting the improved dollar supply, the naira last week maintained its upward trend against the dollar in the I&E window, appreciating by N4.8.

According to the FMDQ, the indicative exchange rate for the window, known as Nigeria Autonomous Foreign Exchange (NAFEX), dropped to N359.98 per dollar last week Friday, from N364.78 per dollar the previous week. This translates to N4.8 appreciation for the naira. Thus the naira has appreciated by N7.08 for three consecutive weeks in the window.

However, the naira depreciated by N3 in the parallel market, as the exchange rate for the market rose to N370 per dollar last week from N367 per dollar the previous week, owing to increased demand for dollars in the market.

On the other hand the CBN sustained its intervention in the foreign exchange market by injecting $364 million into the interbank foreign exchange market. “The Retail Secondary Market Intervention Sales (SMIS) received the largest allocation of $264.19 million. The CBN also offered the sum of $100 million to authorised dealers in the wholesale window”, said Isaac Okororafor, Acting Director, Corporate Communications Department, CBN.

In addition to this, the CBN, in a bid to improve foreign exchange availability in the forex market and ameliorate challenges encountered by critical stakeholders, said it will now sell dollars to accommodate payment for port charges to the Nigerian Ports Authority (NPA) and other agencies by oil marketing companies. A circular signed by the Director, Trade and Exchange Department, Wuritka Dauda Gotring, directed authorized dealers to accept the request for the payments of port charges from oil marketing companies and forward same to the CBN Forex window.

DMO to issue N135bn FGN bond

This week the Debt Management Office (DMO) will issue N135 billion bond while cost of funds is expected to stabilize in the interbank money market. According to the DMO, the bond offer comprises: 5-year, 14.50 per cent FGN JUL 2021 worth N35 billion, 10-year, 16.2884 per cent FGN MAR 2027 worth N50 billion and 20-year, 16.2499 per cent FGN APR 2037 worth N50 billion.

Analysts were however optimistic that the inflow will have little impact on the level of liquidity and cost of funds in the interbank money market. This optimism was hinged on expected inflow of N88.99 billion from payment of matured treasury bills (T-bills) this Thursday, and the meeting of the Federal Accounts Allocation Committee (FAAC) which usually results to release of the monthly statutory allocation to the three tiers of government. The N652.23 billion released last month as statutory allocation to the three tiers of government helped in boosting market liquidity and taming cost of funds volatility.

According to analysts at Cowry Assets Management Plc, a Lagos based investment firm, “This week, we expect maturities via secondary market worth N14.65b viz: 167-day bills worth N7.976b and 168-day bills worth N6.674b. We expect further financial system liquidity ease and stability in interbank rates.”

Similarly, analysts at Vetiva Capital Management Limited, stated: “We expect the Fixed Income market to open the week tepid as pressured liquidity continues to constrain demand.
“However, we foresee improvement in sentiment towards week close, supported by the expected OMO maturity on Thursday.”

Abiodun Oyindamola, With Agency report