Foreign reserves hit $33.57bn over increasing inflow
By Kayode Tokede
The nation’s foreign reserves increased to $33.57billion as at last Thursday following increased foreign exchange inflow from crude oil, among others.
The naira depreciated by 0.1 per cent to N412.00 against the dollar and 0.8per cent to N524.00 against the dollar at the Investors & Exporters (I&E) Foreign Exchange and parallel market, respectively.
At the I & FX window, total turnover (as of 26th August 2021) decreased by 24.9 per cent Week-till-Date (WTD) to $404.96 million, with trades consummated within the N400.00 – N424.25 against the dollar band.
According to analysts at Cordros securities, “We expect improved liquidity in the IEW over the medium term, given our expectation of (1) increased oil inflows in line with the rise in crude oil prices and (2) inflows from FCY borrowings ($6.18 billion) and International Monetary Fund (IMF) $650 billion SDR fund.
“Accordingly, we expect the naira to remain relatively range-bound (N410 against the dollar – N415.00 against the dollar) at the I & FX.”
The President of the African Development Bank, Akinwumi Adesina had the IMF’s $650billion SDR grant, which includes $27billion for African countries, will help developing countries strengthen their reserves.
He said this while speaking at a closed-door session between German Chancellor, Angela Merkel and heads of international development institutions.
The AfDB, in a statement titled ‘International community must act to avert a two-speed global economic recovery post-Covid-19,’ quoted Adesina as saying, “The recent IMF release of $650bn in SDRs, with $27bn to Africa, will go a long way in helping to boost reserves for developing countries.
“If the developed countries reallocate $100billion of SDRs to Africa, as agreed at the Paris leaders meeting and by the G7, that will further support faster economic recovery in Africa.”
The Presidents of the African Development Bank, the International Monetary Fund, the World Trade Organization, the World Bank, the Organization for Economic Cooperation and Development, and the International Labour Organization were among those present at the closed-door meeting.
Angela Merkel, the German Chancellor, has called on the IMF, the G7, and the World Bank to help low- and middle-income nations recover from the COVID-19 problem by developing solutions.
“We have noted that the recovery after the pandemic is a two-speed recovery, which is cause for concern,” she said.
However, the overnight rate contracted by 15.33ppts w/w to 8.5per cent, as inflows from FAAC disbursements (c. N439.49 billion), OMO maturities (N157.27 billion) and FGN bond coupon payments (N49.89 billion) outweighed funding pressures for net NTB issuances (N150.13 billion) and CBN’s weekly OMO (N60.00 billion) and FX auctions.
“We expect tighter liquidity in the system in the coming week as the CBN should mop up excess funding given its tight liquidity management posture.
“Also, we expect outflows for the weekly auctions to outweigh the only expected inflows from OMO maturities (N60.00 billion).
“Bearish sentiments returned to the Treasury bills secondary market sustained as market participants sold off positions to meet funding obligations following the tight system liquidity at the beginning of the week.
“Consequently, the average yield across all instruments expanded by 16bps to 5.5per cent.
“Across the market segments, the average yield at the OMO segment expanded by nine basis points to six per cent. Similarly, average yield at the NTB segment notched higher by 27bps to settle at five per cent.
“On Wednesday, there was a bi-weekly NTB PMA where the CBN offered bills worth N157.21 billion and eventually allotted N307.34 billion (the highest amount recorded this year) – N3.54billion of the 91D, N22.86 billion of the 182D and N280.93 billion of the 364D bills – at respective stop rates of 2.50per cent (unchanged), 3.50per cent (unchanged), and 6.80 per cent (previously 7.35per cent).
“We also note that the subscription at this auction was expectedly high at N392.12 billion (bid to offer ratio: 2.5x). We expect the yield on T-bills to inch higher in the coming week, given the expected tight liquidity picture.
“Proceedings in the Treasury bonds secondary market closed the week on a bullish note, as the average yield contracted by 23bps to 11.2per cent.
“We attribute the decline to the (1) improved demand following the sustained improvement in macroeconomic conditions as signalled by the third consecutive quarter of positive growth (Q2-21 GDP: +5.01per cent y/y vs Q1-21: +0.51% y/y) and (2) further reduced stop rates at the mid-week NTB auction.
“Across the benchmark curve, the average yield declined at the short (-32bps), mid (-25bps) and long (-18bps) segments as investors’ interest piqued on the JAN-2026 (-48bps), MAR-2027 (-32bps) and JUL-2034 (-49bps) bonds, respectively.
“In the coming week, we maintain our expectations of lower average yields in the face of limited supply and deliberate efforts by the DMO to reduce domestic borrowing costs for the government.”
