Injection of excess $3.7bn to lead to 17% import rise, reserve decline

… naira to strengthen as CBN pumps in $240m today
… adjusts BDC weekly sales to $10,000 Tuesdays only
… directs banks to pay dollar cash OTC

Nigeria’s external reserve is estimated to reverse gains and import to rise by 17 percent, if the Central Bank of Nigeria’s (CBN) foreign exchange injection exceeds $3.7 billion, according to analysts at Renaissance Capital.
This, according to the analysts, will be negative for GDP growth, as the trade balance would turn negative. The risk is that Nigeria’s fixation on a stable forex rate will see the naira become increasingly overvalued and foreign reserves’ decline likely to resume.
The CBN has injected about $2 billion in the market since it began its foreign exchange invention to meet wholesale and retail dollar needs.
The flexible foreign exchange policy of the CBN has led to $6 billion build-up of external reserves since November 2016, to about $30 billion currently.
“We estimate the CBN can inject $3.7 billion per quarter from second quarter to fourth quarter 2017, on average, and concurrently keep foreign reserves stable at $30 billion. An injection greater than $3.7 billion would result in reserves falling,” Yvonne Mhango, head of research, sub-Saharan Africa/economist at Renaissance Capital, said in a note to BusinessDay.
However, the sustainability of the central bank’s forex injection policy is largely dependent on oil export receipts, especially given that net financial inflows, which include Foreign Direct Investment (FDI) and portfolio investments, are low and are unlikely to pick up significantly, in the absence of a move to a market-determined forex rate, which is the expectation of analysts.
The nation’s currency, which has depreciated to N400 per dollar on Monday, is expected to strengthen as the CBN injects a total of $240 million in the foreign exchange market.
The CBN on Monday, April 3, released the sum of $90 million to meet requests for invisibles such as BTA/PTA, medical and school fees. The bank, also on the same day, offered a total of $150 million to authorise forex dealers in the interbank wholesale auction window.
Isaac Okorafor, acting director in charge of corporate communications, confirmed the figures, disclosing that the CBN had adjusted BDC sale days to Tuesdays only to reduce logistical difficulties. He said henceforth the apex bank would sell $10,000 only to low-end forex dealers once a week.
According to Okorafor, in a bid to further ease the access of customers, the CBN has also directed all banks to pay cash over the counter to desiring foreign exchange customers.
While urging the banks to oblige the genuine requests of customers, the spokesman advised customers to report any un-cooperating bank to the CBN through available platforms.
It would be recalled that the CBN in the recent months had made offers and releases to the interbank foreign exchange market in its bid to sustain forex rule supply to different categories of users.
Meanwhile, the CBN spokesman expressed optimism that the sum of $150 million offered to authorise forex dealers in the interbank wholesale window to meet the requests of genuine wholesale customers would be fully subscribed at the auction as was the case at the last auction on March 28, 2017.