Why CBN’s Forex interventions may drop in 2019-Analysts

…Injects fresh $268.4m, CNY 46.3m into FX market

Motolani Oseni

Despite a whopping $1.5 billion total foreign exchange interventions by the Central Bank of Nigeria (CBN) in less than two months of 2019, analysts at ARM Research have predicted a likely drop of foreign exchange injections this year compared to massive forex mediations recorded in 2018.
This is even as the apex bank on Friday, February 22, 2019, made an intervention of $268.4million in the retail Secondary Market Intervention Sales (SMIS) and CNY 46.3million in the spot and short tenored forwards segment of the inter-bank foreign market. The Lagos based company in its report entitled, “January 2018 Economic Update – resurgence in FPI flows softens CBN intervention sales,” stated that after the surge in capital outflows from the economy recorded towards the end of last year: “ The Investors and Exporters Window (IEW) witnessed a rebound in activities in the month of January with inflows (ex-CBN) rising to $2.6 billion (+79.8per cent MoM), to account for 95per cent (vs. 58.4per cent in December) of outflows (+10.3per cent MoM to $2.8 billion). “As a result, unmet demand at the window declined from $1.0 billion in December to $131 million in January. Reflecting the rebound inflows during the month, the apex bank intervention sales at the IEW declined 62.5per cent to $453 million (vs. $1.2 billion in December),” the analysts added. They noted that “Over the rest of 2019, we maintain our view that CBN intervention will come in relatively lower than the prior year with our estimate suggesting total outflow of $50.2 billion during the year, which is lower than $54.5 billion in FY 2018. “On inflows, having modelled crude oil production and price of 2.07mbpd and $55.95/bbl. for 2019 respectively, we forecast average monthly crude oil inflow to the CBN of $1.15 billion over 2019 with overall oil inflow for the year estimated at $13.83 billion (-10.2per cent YoY). For non-oil inflow, while we note the relative stability post-election in Q1 2019, we estimate total FPI flows over 2019 to decline 35.4percent YoY to $7.6 billion.” The apex bank had pumped a total of $1.18billion into the interbank foreign exchange market during the period and also sold $300million to about 4,000 BDCs ($75,000 per BDC). Until last December when the CBN introduced a special forex sale of $15,000 per BDC every Thursday due to what it said was increased forex demand during the Christmas and New Year festivities, each BDC was entitled to purchase $20,000 from the regulator on Mondays, Wednesdays and Fridays. This means that with the new special Thursday sale each BDC has been buying a total of $75,000 per week from the CBN since December 2018. Interestingly, in its 2019 economic outlook, Coronation Research had predicted that the CBN would pump $6billion into the forex market this year. Speaking on the report, Head of Coronation Research, Guy Czatoryski, said, “We forecast an average $58.00/bbl for 2019. An average much below this means the CBN will have to keep rates very high and could even challenge the Naira / US dollar exchange argument. An average much about $60.00/bbl means the CBN will have confidence its reserve position and will be able to cut rates later in the year, in Q4, less likely Q3. Meanwhile, the Director, Corporate Communications Department, CBN, Isaac Okorafor, has revealed that the apex bank fresh intervention was for requests in the agricultural and raw materials sectors. The Chinese Yuan, on the other hand, was for Renminbi-denominated Letters of Credit. Mr Okorafor further expressed satisfaction over the stability in the foreign exchange market which according to him, was largely due to sustained intervention by the Bank. He assured that the Bank would remain committed to ensuring that all the sectors of the forex market continue to enjoy access to the needed foreign exchange.