CBN may not revisit FX policy in the near term
The nation’s external reserve went up by $2.1 billion in the month of March on the back of stability in the global price of oil.
For most part of the month, oil price stayed at around $60 per barrel with production volume moving below budget.
The nation plans to be producing minimum of 2.3 million barrels of oil per day to finance fiscal year 2019 budget.
However, inconsistence around supply chain has consistently against the target as the nation’s daily production hovering below 2 million barrels of oil per day.
In its analysts note, FBNQuest said that the gross official reserves increased by US$2.1bn in March to US$44.4 billion. Analysts say the accretion in the external reserve would strongly support the nation’s ability to supporting Naira.
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According to the analysts, Oil revenue has been the primary driver for movements in reserves. Over the past month, the oil price has been above US$60/b. In addition, oil production has been relatively stable, an obvious positive for accumulation, due to visible reduction in vandalism of oil assets.
Trades of foreign portfolio investors (FPIs) have also contributed to the pick-up. Since 23 February, that is post the presidential election, the investors and exporters’ FX window (NAFEX) has recorded inflows of over US$5.0 billion, with FPIs accounting for 73% of the total.
Although the trend in weekly transactions at the NAFEX has been downwards, weekly turnover has remained above US$1 billion over the past five weeks. The transactions cover both sides of trades. The reserves data are gross, covering just fx and exclude swap contracts.
“The figure for gross reserves includes the balance in the excess crude account, for which the latest figure in the public domain is US$183 million. Reserves at end-March covered more than 13 months’ merchandise imports, and eight months when we include services on the basis of the balance of payments (BoP) to December 2018. This is a healthy fiscal buffer by any criteria”, FBNQuest reckoned.
“The cushion is not wholly the CBN’s. Its latest figures (from November) show that it was the owner of 86% of reserves. Given this cushion of reserves and the fact that sectors such as manufacturing are benefiting from FX availability, we doubt the CBN will be revising its fx policy in the near-future”, FBNQuest stated.
