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Thursday, 9 November 2017


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According to speculation by the Central Bank Of Nigeria backed by data which showed the external reserves of Nigeria rose by $1.37 billion in October to $33.89 billion from $32.49 billion in September, it is believed that the external reserves of Nigeria will increase to $35 billion in the month of November.
The last time the nation had $35 billion external reserve was end of November 2014, when it dropped to $35.24 billion from $36.25 billion at end of October 2014. The increase recorded in October was over 100 percent higher than the $660 million increase recorded in September. This was occasioned by increased inflow from foreign exchange earnings from crude oil following sustained increase in the price of crude oil. From a low of $46.39 per barrel in February, price of Nigeria’s Bonny Light crude oil, rose to $59.11 per barrel last week and has rose to over $60 per barrel this week, according to data on CBN website. With daily crude oil production rising from 1.82 million barrels in February to 2.1 million barrels as stated by Vice President Yemi Oshinbajo last week, the above implies 47 percent or $40 million increase in daily potential crude oil earnings to $124 million from $84.2 million in February. In addition to this is sustained dollar inflow through the Investors and Exporters (I&E) foreign exchange window, created by the CBN April 21. According to the CBN Deputy Governor, Financial System Stability, Dr. Joseph Nnana, the window attracted over $10 billion in four months. The above implies that the $1.37 billion accretion into the nation’s external reserve may be repeated, leading to $35 billion reserves by the end of the month. CBN injects $1.56bn in October

Last month the CBN injected $1.56 billion through its weekly intervention in the interbank foreign exchange market, and two special dollar auctions. Financial Vanguard analysis revealed that the apex bank injected $592 million via special auctions, comprising $306.3 million sold on Friday October 13, and $285.7 million sold on Friday, October 27. On the other hand, the CBN injected $975 million through the weekly $195 million injected into the interbank market comprising allocations to the Wholesale segment, Small and Medium Enterprise (SME) window and the invisibles (school fees, medicals etc) window. During the month, the wholesale segment received $500 million, SME window received $250 million while invisibles received $225 million. 

Given the expected sustained accretion to the nation’s external reserve, the apex bank is expected to sustain this pace of intervention in the foreign exchange market. Financial Vanguard reliably gathered that the apex bank will this week conduct wholesale forex auction to complement the $195 million to be injected today, and thus further stimulate supply into the foreign exchange market. Meanwhile the stability of the naira in the foreign exchange market persisted last week. At the parallel market segment, the naira remained stable at N363 per dollar, due to weak demand and boost in supply. Also the naira was fairly stable at the Investors and Exporters (I&E) window as the indicative exchange rate rose by 26 kobo to N360.57 per dollar from N360.31 per dollar the previous week. The interbank money market this week received liquidity boost of N223.8 billion from maturing treasury bills (TBs). Thus the scarcity of funds which caused short term cost of funds to rise by 2006 basis points (bpts) last week is expected to persist this week. Financial Vanguard analysis revealed that the market suffered volatility in cost of funds last week, mainly due to the aggressive liquidity mop up activities of the CBN through issuance of special TBs known as Stabilisation Securities. During the week, the market experienced inflow of N400 billion from matured secondary market and Stabilisation Securities, which prompted cost of funds to fall below five percent. The liquidity relief was however short lived as the apex bank offered and sold N220 billion Stabilisation Securities to banks, in order to mop up liquidity from the market. Financial Vanguard analysis of TB auction during the week showed that the apex bank offered N598 billion and sold N361 billion, while demand was N412 billion. At the secondary market where existing TBs are sold, the apex bank offered N497 billion, sold N260 billion, while demand stood at N260 billion. At the primary market, where fresh TBs are sold, the apex bank offered and sold N101 billion while demand stood at N152 billion. The N412 billion outflow through TBs triggered scarcity of funds towards the end of the week causing cost of funds to rise above 30 percent. 

Data from Financial Market Dealers Quote (FMDQ) revealed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 2005 bpts to 36.33 percent last week from 15.83 percent the previous week. Similarly, interest rate on overnight lending rose by 2006 bpts to 39.42 percent from 18.75 percent the previous week.
It is on this note that the CBN is anchoring its prediction and assumption with the believe that the increase recorded in October  which was over 100 percent higher than the $660 million increase recorded in September will repeat and continue on that rate.

ABOUT FOREIGN RESERVES                                   Foreign reserves is money or other assets held by a central bank or other monetary authority so that it can pay if need be its liabilities, such as currency issued by the central bank, as well as the various bank reserves deposited with the central bank by the government and other  financial institutions. Reserves are held in one or more reserve currencies, mostly the United State dollars

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