- It’s an indication of positive impact of CBN’s reform initiatives – Experts
Analysis of the latest data from the Central Bank of Nigeria regarding Nigeria’s gross foreign reserves shows a modest accretion to $34.11 billion as of March 7, 2024, since the beginning of the year.
The figure represents 3.64 percent growth year-to-date, as experts say it reflects an encouraging trend of improved foreign exchange inflow into the economy.
The move is perceived by financial experts as an indication of the positive impact of the CBN’s reform initiatives.
According to the CBN report, total portfolio flows into the economy as of March 7, 2024, stood at $2.4 billion compared to $3.9 billion in the entirety of 2023.
Analysis of the 2023 performance indicates that the country recorded a nearly 2 percent dip in its reserves since June 2023, following the foreign exchange unification exercise by the central bank. The exercise was aimed at streamlining the foreign exchange market and enhancing transparency.
Financial experts have attributed the decline in reserves since June 2023 to various factors, including limited availability of foreign exchange liquidity due to low crude oil production, reduced export earnings, foreign exchange revaluation in 2023, and subsidy payments. But despite these challenges, the recent upward movement in reserves signals positive foreign exchange inflows into the economy.
Further analysis of the data from CBN shows that within the first few days of March 2024, there has been a positive trend in total foreign exchange inflows driven by increased investor interest in short-term sovereign debt following adjustments to benchmark interest rates.
Additionally, overseas remittances surged to $1.3 billion in February 2024, surpassing the previous month’s inflow of $300 million by more than four times.
“The move is perceived by financial experts as an indication of the positive impact of the CBN’s reform initiatives.”
Foreign investors actively participated in the Nigerian market, purchasing over $1 billion worth of local assets in February. This surge in foreign exchange inflow was attributed to substantial growth in remittance payments from Nigerians abroad and heightened interest from foreign portfolio investors in acquiring naira assets.
However, on a year-on-year analysis, Nigeria’s gross external reserves have experienced a decline of $2.55 billion or 6.95 percent since the first week of March 2023.
This decline occurred as the apex bank continued its weekly and monthly interventions in the foreign exchange market to stabilize the value of the local currency amidst rising forex volatility.
Despite this, efforts to enhance transparency in the forex markets and maintain naira stability have positively impacted reserve accretion.
Expressing confidence in the possibility of improved reserve growth, researchers at Cowry Assets Management Limited said the positive rise in Nigeria’s foreign exchange reserves levels was encouraging, despite the continued weakening of the naira in various foreign exchange segments.
“The future trajectory of reserve accretion will be contingent on several factors, including the oscillation of global oil prices, Nigeria’s efforts to tackle oil theft, and the effectiveness of FX management policies by the central bank in the medium to long term. These factors will play a critical role in determining the sustained growth of Nigeria’s foreign reserves and overall economic stability,” they stated in the weekly report.
At the money market, the overnight rate expanded by 281bps w/w to 31.0 percent, as the debits for last week Friday’s OMO auction (N1.06 trillion), net NTB issuances (N979.79 billion) and the transfer of NNPC’s remittance obligations from commercial banks to the CBN’s Treasury Sales Account (TSA) impacted the system.
However, due to DMBs’ utilisation of the CBN’s SLF facility, the average system liquidity settled higher at a net long position of N1.37 trillion (versus a net long position of N642.18 billion in the previous week).
Barring any liquidity mop-up action by the CBN this week, analysts envisage the OVN rate to trend southwards as the principal and coupon payments for the maturing FGN MAR 2024 bond (NGN771.11 billion) are expected to support system liquidity.
Also in the review week, activities in the T-bills secondary market remained bearish, as the average yield across all instruments expanded by 140bps to 18.8 percent.
Across the market segments, the average yield advanced by 156bps to 18.8 percent in the NTB segment and increased by 89bps to 18.8 percent in the OMO secondary market.
At this week’s NTB auction, the apex bank offered instruments worth NGN337.89 billion – NGN14.42 billion of the 91-day, NGN10.55 billion of the 182-day, and NGN312.92 billion of the 365-day bills – to participants.
Total subscription at the auction settled at NGN1.66 trillion (bid-to-offer: 4.9x), with more demand skewed towards the longer-dated bill (NGN1.54 trillion | 92.9% of total subscription).
The auction closed with the CBN allotting precisely what was offered for the 91D and 182D bills but over-allotting for the 365D bill (NGN1.29 trillion) at respective stop rates of 17.24% (previously: 17.00%), 18.00% (previously: 17.50%), and 21.49% (previously: 19.00%).
