Foreign Reserves Rise to $35.77 Billion in 14days

Nigeria foreign reserves last Thursday rises to $35.77 billion from $33.99billion when it begins early this month.

This connotes the nation’s foreign reserves gained $1.78billion, as disclosed by the Central Bank of Nigeria (CBN).

The foreign reserves in May stood at an average of $34 billion but jumped to $35.03 billion on May 14. Between May 14 to May 21, the foreign exchange buffer gained $730million.

Analysts attributed the driver of the foreign exchange accretion to the inflow of Rapid Financing Instrument (RFI) facility by the International Monetary Fund (IMF), which continues to outweigh foreign exchange outflows.

The IMF towards the end of April approved $3.4 billion in emergency financial assistance under the RFI to support the authorities’ efforts in addressing the severe economic impact of the COVID-19 shock and the sharp fall in oil prices.

The Executive Board of the IMF approved Nigeria’s request for emergency financial assistance of $ 3.4 billion, 100 per cent of quota under the RFI to meet the urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic.

Consequently, the Naira gained some ground against the dollar by 0.20 per cent week-on-week (w/w) to N385.94/USD at the Investors & Exporters Foreign Exchange (I&E FX)  window but slid by 2.1per cent w/w to N460.00 against the dollar in the parallel market.

“In the Forwards market, the naira appreciated against the dollar across all contracts, save for the 1-month (-0.02 per cent to N388.21/USD).

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Notably, the 3-month (+0.2 per cent to N391.62/USD), 6-month (+0.5 per cent to N396.74/USD), and 1-year (+1.0 per cent to N414.48/USD), contracts all recorded stronger naira values against the greenback.

“We still hold the view that the RFI inflow will continue to provide short-term support for the FX reserves.

“Nonetheless, we expect the currency market to remain largely volatile, especially in the parallel as the CBN’s suspension of FX sales to BDCs continues to create a backlog of unmet FX demand,” explained analysts at Cordros capital  said.

They explained further that “The overnight (OVN) rate expanded by 13.63ppts, w/w, to 15.6. The OVN steadied at c. two per cent levels for most of the week, as system liquidity was supported by inflows from FAAC allocation (c. N300.00 billion) and FGN bond coupon payments (N17.87 billion).

“However, debits for Wednesday’s FGN bond PMA (N295.37 billion) and CRR debits caused the eventual expansion in the OVN rate to its current level.

“We expect the OVN rate to trend southwards next week, as inflows from OMO maturities (N319.72 billion) and FGN bond coupon payments (N5.63 billion) come into the system.

Trading in the Treasury bills secondary market was bullish, as the average yield across all instruments contracted by 177bps to 4.9per cent.

The contraction was majorly influenced by trading activity at the OMO segment (average yield: -242bps to six per cent) as market participants demanded mid and long tenor instruments due to no sales at the last auction.

“At the NTB segment, the average yield contracted by 11bps to 2.2 per cent due to piqued investors’ interest following improved rates in the space.

“In the coming week, we expect healthy demand for T-bills, as system liquidity improves with expected inflows in the week. In the NTB segment, we expect the focus to be shifted to next week’s PMA.

“While there is no indication of the amount to be offered, we expect a similar result from the last NTB PMA,” analysts at Cordros capital explained.