The foreign investors are seen to be careful of investing in the country as the total capital importation through the Investors’ and Exporters’ Foreign Exchange Window (I&E window) in November 2018 stood at US$1.98 billion, the lowest since August 2017.
The CBN remained the largest contributors to the inflow in November, the same trend observed in the last three months. Transactions in the I&E FX window reached $24 billion ($6 billion net inflows) in 2017.
The CBN said it is determined to maintain its stable exchange policy stance over the next few months given the relatively high level of reserves.
“I will like to make it categorically clear that “sustaining a stable exchange rate is of overriding importance to us even as we continue to put measures in place to shore up reserves”, said Godwin Emefiele, governor of Central Bank of Nigeria (CBN).
FSDH Research, an arm of the FSDH Merchant Bank Limited forecasts that the inflation rate for November 2018 will inch up to 11.28 percent as a result of the impacts of end of year purchases.
In its monthly economic and financial market outlook, titled ‘Will Crude Oil Market Receive the Required Stimulus?’ FSDH Research, noted there was accretion to the external reserves in November following four months of consistent drawdown. FSDH Research notes that the proceeds from the US$2.86bn Eurobond issuance contributed to the growth of external reserves in November. Meanwhile, with indications that OPEC and non-OPEC members may agree to an output cut, the oil price may recover and sustain the external reserves in the short-term.
The firm noted the significant drop in the price of crude oil in October 2018 and highlights implications on the Nigerian economy should the price continue to fall.
According to data obtained from the US Energy Information Administration (EIA) Short-Term Energy Outlook (STEO) in its report for November 2018, crude oil prices declined in October at a faster rate than in any month since July 2016. Brent spot crude oil price declined by U$10/b in October to close at U$75/b. Similarly, Bonny Light crude oil price declined by 16.01% in October to close at US$73.34/b. The price of Bonny Light crude oil dropped further to US$59.22/b as at 30 November 2018. This represents a drop of US$28.44/b from the highest price of US$87.66 recorded in October 2018. The decline in oil prices is attributed to two major factors: the indication of a global economic slowdown, and the higher-than-expected global crude oil supply.
“Crude oil is important to the Nigerian economy as the major source of revenue for the Government and the largest supplier of foreign exchange to the country. A significant drop in either the price of crude oil or production will directly have a negative impact of the fiscal position of the country. It will also cause major macroeconomic instability, particularly in the exchange rate and inflation rate”, Ayodele Akinwunmi, head, FSDH Research said.
FSDH Research notes that the crude oil market developments in 2018 and 2019 appear better than in 2017. “Despite these fairly positive developments, we are aware that the crude oil market is very volatile, therefore it is crucial to learn from the events that happened in 2014 through to 2017 in order to take proactive measures against unwarranted economic crisis in Nigeria. Government at all levels must intensify efforts to implement policies that will grow the non-oil sectors of the economy”.