Investors excited as Nigeria’s external reserves hit 4-year high of $40.3bn

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Central Bank of Nigeria

By Ayinde Oluseye

Investors in Nigeria are excited as the country’s external reserves rose to $40.33 billion last week, the highest in four years. Also, investors have injected $5.23 billion through the Investors and Exporters (I&E) foreign exchange (forex) window in four weeks while the Central Bank of Nigeria, CBN, has intervened in the forex market with $986 million since the beginning of the year.
Data from the CBN website showed that external reserves rose to $40.33 billion on Thursday, January 25, from $38.765 billion on December 29, 2017.
Thus, the reserves have risen by $1.56 billion this year. The $40.33 billion reserves represent the highest since January 2014 when the reserves dropped to $40.6 billion from $42.84 billion in December 2013.
The steady rise in the external reserve, from July 7 last year, is occasioned by improved foreign exchange inflow occasioned by increase in crude oil price, dollar inflow from foreign portfolio investors facilitated by the Investors and Exporters (I&E) window introduced in April last year, as well as reduction in dollar sale through CBN’s forex intervention.
Last week crude oil price rose above $70 per barrel, the highest in three years, while the I&E window attracted $26 billion last year.
Last week, CBN Governor, Mr. Godwin Emefiele, projected that the nation may achieve $60 billion external reserves in 2019, should this trend persist.
He said increases in the price and shipment of oil, Nigeria’s biggest foreign-currency earner, and improved investor confidence mean the CBN can build its reserves to $60 billion in the next 12 to 18 months, from $40 billion currently.
“Things are looking up. No one ever thought the price of crude would hit $70 in such a short period of time”, he said during an interview with Bloomberg.
Meanwhile, analysis by expert at Reapfinance showed that foreign investors injected $5.2 billion through the I&E window in the first four weeks of the year, indicating increased confidence in the nation’s economy.
Analysis revealed that foreign investors injected $1.84 billion through the I&E last week, indicating 29 percent increase, when compared with $1.42 billion injected the previous week.
However, the naira depreciated by 25 kobo in the I&E window last week, as the indicative exchange rate rose to N360.35 per dollar from N360.10 per dollar the previous week. The naira, however, remained stable at N364 per dollar in the parallel market.
Meanwhile, the CBN on Friday injected another $304 million into the foreign exchange market through the Retail Secondary Market Intervention Sale (RSMIS). Announcing the intervention on Friday, Acting Director, Corporate Communications Department, CBN, Mr. Isaac Okorafor said: “The Central Bank of Nigeria (CBN) has intervened in the Retail Secondary Market Intervention Sales (SMIS) of the inter-bank Foreign Exchange Market to the tune of $304.4 million.”
He said that interventions were in favour of interests in the agricultural, airlines, petroleum products and raw materials and machinery sectors.
Reiterating that the objective of the CBN remained to boost liquidity, production and trade, Okoroafor explained that the CBN would continue to ensure liquidity in the interbank sector of the market as well as sustain its interventions in order to drive economic growth and guarantee market stability.
Speaking further, Mr. Okorafor expressed optimism that the Nigerian economy stood to gain massively from the bank’s forex management strategy as could be seen in the accretion to the foreign reserves, which now stands at over $40 billion.
Reapfinance analysis further revealed that the apex bank had intervened in the foreign exchange market four times this year to the tune of $986 million.
The apex bank intervened with $262.2 million on January 12, $210 million on January 15, $210 million on January 23 and with $304.4 million on January 26. Stable cost of funds as N272bn TBs enhance market liquidity.
Cost of funds is expected to remain relatively stable this week buoyed by inflow of N272 billion from maturing bills. Last week, cost of funds fell sharply by 1,226 basis points (bpts) following inflow of statutory allocation funds of over N600 billion.
This combined with inflow of N67.65 billion from matured treasury bills cancelled the effect of N351.71 billion outflow through secondary TBs issued by the CBN in continuation of its liquidity mop up operations.
According to data from Financial Market Dealers Quote (FMDQ), interest rate on Collateralised (Open Buy Back, OBB) lending fell by 1,217 bpts to 4.5 percent last week from 16.67 percent the previous week.
Similarly, interest rate on Call lending dropped by 1.234 bpts to 5.33 percent on Friday from 17.67 percent the previous week.
While there will be auction of primary market TBs worth N252.7 billion this week, analysts project this will have marginal impact on cost of funds, due to inflow of N272.21 billion from maturing TBs, as well as the continued effect of the inflow from statutory allocation funds which commenced last week.