Sanusi Lamido Sanusi, governor, Central Bank of Nigeria (CBN), has said that offshore portfolio flows in the financial system are equivalent to a quarter of CBN dollar reserves.
“The hot money in the system is equivalent to 25 percent of reserves, with 10 percent of that in fixed income and 90 percent in equity,” Sanusi said in an interview earlier last week.
The spike in offshore portfolio flows into Nigeria’s capital markets has had the (CBN), in the past worrying over the potential negative fallout from a sudden fund flow reversal.
Nigeria’s total external reserves are up 9.2 percent year to date and stood at $48.4 billion, according to May 22 data from the CBN website, meaning offshore flows currently amount to $12.1 billion.
The CBN had cautiously embraced ‘hot money’ flows into the country, as it only recently (in 2011) lifted the one-year minimum hold period on Nigerian bonds by foreign investors leading to an increase in such inflows into Nigeria.
The bank pushed up short term interest rates through the hike in its Monetary Policy Rate (MPR) to 12 percent, a move designed to improve the incentive for local and international investors to hold NGN-denominated assets.
The Monetary Policy Committee led by Sanusi held its policy rate at 12 percent for a 10th consecutive meeting last Tuesday, to bolster its foreign-currency reserves and support the naira after oil prices fell last month.
Sanusi said portfolio inflows have slowed this year partly because of the decline in oil prices.
The inflation rate rose to 9.1 percent in April from 8.6 percent the previous month, according to data from the National Bureau of Statistics.
The naira has dropped 1.4 percent against the dollar since the beginning of the year, according to data compiled by Bloomberg.
The exit of hot money from Asian currencies as a result of the Asian financial crises of 1997 – 1998 led to huge currency devaluations and a collapse in aggregate output, massive poverty and unemployment.