External reserves near $40bn as inter-bank rates moderate

by | January 6, 2018 3:09 pm

Nigeria’s external reserves currently at $39.07 billion as at January 4, 2018, near the $40 billion mark which Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) predicted for the end of 2018.

The foreign reserves had recovered significantly from about US$23 billion in October 2016 to over US$39 billion. Emefiele had explained that the accretion in reserves would reflect increased inflow as well as the CBN’s shrewd forex demand management strategy.

Analysts see the pick-up in oil production as an obvious positive for accumulation in foreign exchange reserves.

The price of Brent crude oil rose to $67.37 as at Friday January 5, 2018. Crude oil accounts for more than 90 percent of Nigeria’s foreign exchange earnings.

“A gross external reserves of about $40 billion is enough to finance over eight months of imports. It puts the CBN in a stronger position to manage the foreign exchange market leading to a strong naira, lower exchange rate and a positive pass through effect on inflationary pressure. It will equally enhance the international credit standing of the country”, Uche Uwaleke, Associate Professor and Head, Banking and Finance department Nasarawa State University, said.

At the money market, there is expectation of N309.06 billion from matured treasury bills this week, which would boost liquidity in the banking system and this has raised analysts expectation of interest rates moderation.

The overnight inter-bank rate on Friday rose to 19.00 percent from 5.50 percent on Tuesday, while Open Buy-Back (OBB) also increased from 4.67 percent on Tuesday to 18.33 percent on Friday last week, FMDQ figures revealed.

“This week, we expect moderation in interbank lending rates in anticipation of inflows worth N309.06 billion in matured treasury bills”, analysts at Cowry Asset Management limited said.

The CBN last week auctioned T-Bills via the primary market, worth N161.54billion. A breakdown of the auction shows that 91-day bills was worth N11.77 billion, 182-day bills worth N33.93 billion and 364-day bills worth N115.85 billion. Their respective stop rates fell to 12.55 percent (from 12.95%), 13.93 percent (from 15.00%) and 14.30 percent (from 15.57%). Furthermore, T-Bills worth N245.25billion were sold via Open Market Operations (OMO). The outflows were partly offset by inflows worth N148.86 billion in matured treasury bills.

The nation’s currency on Friday weakened at the investors and exporters forex window by N0.21k to close at N361.031k as against N361.08k traded the previous day, data from FMDQ show. The naira was quoted at the rate of N305.95k on Friday at the inter-bank foreign exchange market, the same level it was quoted on Thursday.

“We expect sustained stability in the naira as global crude oil prices retains the upbeat which should result in further build-up in foreign reserve”, said analysts at Cowry Asset Management limited.

Last week, the naira gained ground against the U.S. dollar at the parallel market segment week-on-week (w-o-w) by 0.27 percent to N363/USD.

Meanwhile, most dated forward contracts at the interbank over-the- counter (OTC) segment depreciated, despite sustained increase in the foreign exchange reserves –1 month, 2 months, 3 months and 6 months contracts depreciated w-o-w by 0.49 percent, 0.64 percent, 0.71 percent and 0.86 percent to close at N365.63/USD, N370.23/USD, N375.08/USD, and 390.65/USD respectively; wh,ile the spot rate appreciated week-on-week by 0.02 percent, to close at N305.95/USD.

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