Foreign reserves drop to $37.7bn amidst CBN intervention

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By Kayode Tokede

The Central Bank of Nigeria (CBN) has said the nation’s foreign reserves dropped to $37.7billion on last Thursday despite its sustained weekly intervention in the foreign exchange market.

The foreign exchange buffer opened this month at $38.01 billion and in the first three days of this year, it has continually drop, our correspondent can report.

The above implies that the foreign reserves between this month has dropped by $283.99million from $38.01billion to $37.73billion as at February 6, 2020.

However, in continuation of its intervention in the inter-bank foreign exchange market, the apex bank on Friday injected the sum of $218.41million into the retail Secondary Market Intervention Sales (SMIS) and CNY 18million in the spot and short-tenored forwards segment of the inter-bank foreign exchange market.

The Bank’s Director, Corporate Communications Department, Isaac Okorafor disclosed that the intervention, like in previous exercises, was for requests in the agricultural and raw materials sectors, adding that the Chinese Yuan, on the other hand, was for Renminbi-denominated Letters of Credit.

He further expressed satisfaction over the stability of the foreign exchange which, according to him, was largely due to sustained intervention by the Bank. He assured that the CBN Management would remain committed to ensuring that all the sectors of the foreign exchange market continue to enjoy access to the needed foreign exchange, stressing that the stability in the foreign exchange market continued to attract investors.

It will be recalled that the Bank on Tuesday, February 4, 2020, offered authorized dealers in the wholesale segment of the market the sum of $100million, while the Small and Medium Enterprises (SMEs) and the invisibles segments each received the sum of $55 million.

Meanwhile, $1 exchanged for N358 at the Bureau de Change (BDC) segment of the foreign exchange market, while CNY1 exchanged at N46 on Friday.

“With the outbreak of Coronavirus exerting downward pressure on crude oil prices, possible weakened oil inflows and higher repatriation of capital have heightened fears regarding the possibility of a currency devaluation. However, our estimate suggests that the CBN will be able to sustain its naira defense through H1-20, at least,” analysts at Cordros securities noted.

Meanwhile,  the overnight (OVN) rate declined by nine basis points, w/w, to 6.33per cent.

The rate was pressured upwards at the start of the week following outflows for the FX auction and CRR debits (c.N309.00 billion). However, inflows from OMO maturities (N349.02 billion) towards the end of the week boosted system liquidity and drove the rate southwards.

“In the coming week, inflows from NTB (N58.43 billion), OMO (N440.90 billion) maturities, FGN bond maturities (N606.43 billion) and coupon payments (N47.14 billion) will hit the system on the 13th of February. Consequently, we expect the overnight lending rate to contract in the coming week due to the higher liquidity position,” Cordros securities noted in its report.

The Treasury bills market was bearish as investors remained unimpressed by the unattractive NTB yields. Consequently, the apathy led to the average yield in the NTB segment of the market expanding by 12basis to 3.86 per cent as market players looked towards higher yielding corporate issuances and promissory notes. Similarly, the average yield in the OMO segment of the market expanded by 33basis points to 13.53per cent.

This led to the average yield across instruments in both markets expanding by 33bps to 10.47 per cent. Also, there was an OMO auction held during the week, during which the CBN fully allotted instruments worth N128.20 billion – N20.40 billion of the 180DTM, and N107.80 billion of the 362DTM instruments at respective stop rates of 11.60per cent and 13.05per cent. However, ‘no sale’ was recorded on the 82-day bill.

Analysts at Cordros securities added that, “We expect reduced activity in this market as investors anticipate higher yields from the NTB primary market auction in the coming week, with N154.38 billion worth of instruments on offer across all tenors of the market.”

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