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External reserves up by 0.70% as FPIs return to fixed income market

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Nigeria’s external reserves, which had fallen to as low as $42.30 billion as of February 27, 2019, resuscitated last week as it recorded 0.70 percent accretion to $42.60 billion as at March 7, 2019, according to the data from the Central Bank of Nigeria (CBN).

The increases were as a result of the return of Foreign Portfolio Investors into the fixed income market, after the presidential elections carried out in February.

“The external reserve dropped consistently in the month of February. However, we observed that the external reserves have been rising since the beginning of March largely driven by portfolio investment”, said Ayodele Akinwunmi, head of research, FSDH Merchant Bank Limited.

The current position of external reserves continues to provide short-term stability for the value of the Naira.

Capital importation via Foreign Portfolio Investors (FPI) in the Investors’ and Exporters’ Foreign Exchange Window (I&E window) increased for the second consecutive month in February 2019. This provided support for the foreign exchange rate.

Last week, naira traded within tight bands of N360.00 – N361.00 per dollar as the Central Bank sustained its weekly intervention to ensure liquidity and stability of the exchange rate across all segments of the market.

“Although the Apex bank’s intervention put pressure on the reserves pre- presidential election, we observed a c.US$0.2bn uptick in the foreign reserves to US$42.5 billion which has largely been driven by foreign portfolio inflows into the fixed income market”, analysts at Afrinvest Securities limited said.

In continuation of its periodic intervention in the inter-bank segment of the foreign exchange market, the Central Bank of Nigeria (CBN) on Friday, March 8, 2019, injected the sums of $269.92 million and CNY 31.34 million in the Retail Secondary Market Intervention Sales (SMIS) of the Foreign Exchange market.

The dollar interventions were for customers in the agricultural, airlines, petroleum products and raw materials and machinery sectors, while the CNY 31.34 million component was for payment of Renminbi-denominated Letters of Credit for agriculture as well as raw materials.

Confirming the figures, Isaac Okorafor, Bank’s director, corporate communications department, said the level of stability in the market was commendable and would be sustained by the Bank.

Friday’s transaction was in addition to the $210 million injected into the Wholesale, Small and Medium Enterprises, and Invisibles segments of the market on Tuesday, March 5, 2019.

Meanwhile, the exchange rates closed at the rate of N357/$1 on Friday, March 8, 2019 in the Bureau De Change segment of the market, while the Chinese Yuan, closed at N47/CNY1.

FSDH Research noted that the medium-term stability in the foreign exchange market will depend on the country’s foreign exchange receipts from both crude oil and non-oil products.

“Appropriate policies, some of which we have mentioned above, to attract Foreign Direct Investment (FDIs) into Nigeria, will be necessary to guarantee medium-term to long-term stability in the foreign exchange market”, Akinwunmi said.

On the money market, the CBN has maintained the pace of Open Market Operation (OMOs) in recent times, holding three auctions last week for instruments worth a total sum of N645.8 billion across tenors between 91-days to 192-days at marginal rates between 11.9 percent (on the shorter tenor instruments) to 13.48 percent (on the longer tenor instruments).

“Given the overriding aim of the CBN to keep price levels moderate, we expect OMOs to continue apace with recent trends to limit the possibility of speculative attacks on the naira, as system liquidity is expected to be buoyed by OMO maturities worth N88.4 billion”, Afrinvest said in a report.

In the secondary Treasury bills market, the average yield increased significantly by 0.8 percent to settle at 13.9 percent, as investors sold off instruments in the week to partake in the OMO auctions given the more attractive discount rates on instruments auctioned.

“We expect that if the CBN maintains the pace of auctions, as is expected, that market activities will mirror this week in the next week”, analysts led by Ayodeji Ebo, managing director, Afrinvest said.

Consequent on the improved system liquidity in the week, money market rates – Open Buy Back (OBB) and Overnight (OVN) rates –pared to 9.2 percent and 10.1 percent respectively from 16.3 percent and 17.4 percent recorded in the prior week.

The CBN will in the second quarter of 2019 issue a total of N503.16 billion while the same amount will also mature in the second quarter of this year.

A breakdown of the CBN’s treasury bills issue programme for the second quarter released on Tuesday show that Treasury Bills worth N71.6 billion for 91 days, N142.8 billion for 182 days and N288.7 billion for 364 days will mature during the period.

At the same time, the CBN will roll over a total of N79.6 billion for 91 days, N152.8 billion for 182 days and N270.7 billion for 364 days in the second quarter.

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