CBN’s intervention at I & E FX window drops by 62.5%

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Stories by Kayode Tokede

A group of analysts at ARM Research have disclosed that the Central Bank of Nigeria (CBN) intervention sales at the Investors and Exporters Foreign Exchange Window (I&E FX) declined 62.5per cent to $453 million in January 2019.

According to them, a total $1.2 billion was accumulated amount CBN sold in specialized window in December 2018.

The report titled, ‘January 2019 Economic Update – Resurgence In FPI Flows Softens CBN Intervention Sales’ disclosed that, “After a tumultuous end in 2018 following spate of capital repatriation and paucity of flows, the I&E FX witnessed a rebound in activities in the month of January with inflows (ex-CBN) rising to $2.6 billion (+79.8 per cent MoM), to account for 95 per cent as against 58.4 per cent in December) of outflows (+10.3per cent MoM to $2.8 billion).

“As a result, unmet demand at the window declined from $1.0 billion in December to $131 million in January.”

Breaking down FPI inflows, offshore inflow rose 298 per cent MoM to $1.9 billion as against $563 million in December following resurgence in FPI (+186.6% MoM to $1.3 billion) which on average accounts for 88per cent of total foreign inflows.

“On the other hand, local flows (ex-CBN sales) was down 17.3per cent MoM to $742 million as against $897 million in December) largely on the back of decline in other corporates (15.4 per cent MoM to $634 million as against $749 million in December) to account for 85per cent of total local inflows.

“From our estimate, inflow through the CBN during the month declined 18.8per cent MoM to $3.8 billion (Dec: $4.6 billion), largely driven by the moderation in oil and non-oil inflow by 14.9per cent and 20.7per cent MoM to $1.3 billion and $2.5 billion respectively.

“On outflows, beyond the moderation in CBN intervention sales at the I& EFX window, its intervention across other markets also decline during the month,” the report stated.

The report stated that total secondary market intervention sales (SMIS, SME, Invisibles and Non-auction) by the apex bank slowed 30 per cent MoM to $1.6 billion, which coupled with the sales at the I& E FX window, Bureaux De Change and other import demand guides to total outflow from the apex bank of $3.7 billion (down 31.7per cent MoM).

“Accordingly, the adjusted external reserve recorded an accretion of $89,000 (depletion of $753 million in December) during the month to $42.7 billion. Reflecting the reduced demand for foreign exchange during the month, the naira appreciated MoM by 0.23per cent, 0.14per cent and 0.86per cent at the I& E FX, BDC and parallel to N363.8/$, N358.9/$ and N360.6/$ respectively,”  the latest report by ARM research explained.

The report added that, “Over the rest of 2019, we maintain our view that CBN intervention will come in relatively lower than the prior year with our estimate suggesting total outflow of $50.2 billion during the year, which is lower than $54.5 billion in FY 2018.

“On inflows, having modelled crude oil production and price of 2.07mbpd and $55.95/bbl. for 2019 respectively, we forecast average monthly crude oil inflow to the CBN of $1.15 billion over 2019 with overall oil inflow for the year estimated at $13.83 billion (-10.2% YoY). For non-oil inflow, while we note the relative stability post-election in Q1 2019, we estimate total FPI flows over 2019 to decline 35.4% YoY to $7.6 billion.

“As such, we see significant contraction in non-oil inflows to $35.3 billion compared to 2018 of $44.9 billion. Overall, net impact of our inflow and outflow expectation translates to an average monthly reserve drawdown of $536 million over the rest of the year, which should instigate a further depletion in the reserve to $41.5 billion ($44.2 billion if adjusted for the proposed $2.7 billion Eurobond to finance the 2019 budget).”

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