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FX reserves in gradual drawdown as CBN stabilizes Naira

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6 years ago

June 5, 2018

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After reaching a high of $47.9 billion on the 10th of May 2018, which is ~$16 billion accretion from a low of $31.8 billion in September 2017, recent data from the CBN revealed a gradual drawdown of the reserve.

For context, between 10th and 30th of May, the reserve has been drawn-down by $243 million to $47.6 billion.

The drawdown of the reserve is largely connected with increased sale by the CBN at the IEW, $128 million in May from $65.3 million in April, in a bid to cover the sudden slump in FX inflows at the window.

For the first time in 10 months, the IEW recorded a net-demand of $1 billion from a net-supply of $328 million in April following a 55% MoM decline in inflows to $1.2 billion amidst a flat outflow (-3% MoM to $2.2 billion) during the month.

According to experts at ARM, moderation in headline reading is still driven by base effects. “The deceleration in inflation rate continued for the fifteenth consecutive month as headline reading for the month of April printed at 12.48% YoY, 85bps lower than 13.34% YoY in the month of March.”

The experts said while the ongoing Ramadan would put pressure on demand with an attendant upward pressure on food prices, they see moderation on the headline reading in the preview month supported by base effects.

In their report, the experts forecast an overall growth of 2.1% (revised from 2.2%) in Q2 18. “Juxtaposing these changes with the actual growth numbers reported in Q1 2018 translates to a full year growth of 2.4% YoY (prior forecast: 2.6% YoY) – with the oil and non-oil sector expected to grow by 8.5% YoY and 1.8% YoY respectively.”

“Capital importation for Q1 18 printed at $6.3 billion (+17% QoQ; +594% YoY), which is almost at par with Q3 14 levels (merely $240 million short). On a year-on-year basis, we witnessed a significant expansion across all lines on the back of the low base of last year (Q1 17: $900 million).”

In line with historical trend, robust capital importation was largely driven by a surge in portfolio flows (+31.3% QoQ to $4.6 billion) which contributed circa 72% of the total flow into the economy. Breakdown provided revealed that the sharp jump in FPI was on the back of strong flows to money market (61.9% QoQ to $3.5 billion) which largely neutered the decline inflows to equity market (-29.1% QoQ to $700 million).