FX Inflow into Investors/Exporters Window Plunged 47%
Amidst low accretion into the nation’s external reserve, analysts have hinted that inflow into the apex bank’s Investors and Exporters Window plunged more than 47%.
In report, CSL Stockbrokers Limited hinted that data from FMDQ at the close of trading yesterday showed total FX inflow into the I&E window from January till date (Nov 17 2020) printed at US$15.8 billion compared with US$30.0 billion within the same period in 2019 (Jan 1, 2019 – Nov 17, 2019).
It would be recalled that earlier this week, Chapel Hill Denham hinted that average daily turnover at the I&E window rose 4.26% week on week to US$140.29 million.
However, analysts stated that this is still considerably lower than Q1-2020 average of US$350 million.
Currency traders explained that the local currency is faced with demand pressure as parallel market closed at N475 on Friday.
Chapel Hill Denham believes that pressures will likely persist in the near term, unless the CBN ramps up intervention sales.
The nation’s external reserves has remained soft at US$35.62 billion, thus reduced Godwin Emefiele’s led CBN war chest to intervene strongly in the currency market.
In its review, Chapel Hill Denham explained that external reserve balance is equivalent to 6.4 months of 2020 goods and services imports cover.
However, adjusting for Foreign Portfolio Investors holding of Open Market Operations bills (US$11.2bn) and Swaps (US$8.2bn), the reserves is much lower at US$16.2 billion.
In its economic report, analysts at WSTC Securities Limited stated that the exchange rate was stable at the official and I&E window markets at N386.
The parallel markets exchange rate stood at an average of N460 to a dollar, the firm stated.
WSTC explained that the 22% premium in the parallel markets emphasised the FX illiquidity in the official markets, amid weak oil prices and external reserves.
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As of the end of October 2020, the external reserves stood at $35.69bn.
Analysts stated that the external reserves was flat on a month-on-month basis; however, on a year-to-date basis, it declined by 8%.
In the report, WSTC noted that the PMI data for October 2020 showed significant improvements recorded in economic activities.
Notably, production activities and new orders were positive during the period. We expect to see a sustained improvement in subsequent months.
“We believe that year-end consumption activities could drive overall economic activities.
“We also expect to see a significantly higher levels of business activities in the following months, as the coronavirus pandemic seems to have abated”, analysts remarked.
Analysts however observed that the persistent upward inflation trend is a concern.
Over the last few months, the Central Bank of Nigeria put more focus on economic growth, and thus implemented an easing monetary policy.
Meanwhile, the price stability objective of the CBN puts the apex regulator in a dilemma.
During the last Monetary Policy Committee (MPC) meeting outcome, the Committee agreed to lower the Monetary Policy Rate (MPR) by 100 basis points despite the rising inflation.
The justification for lowering the MPR, according to the Committee, was that conventional monetary policies (i.e., higher rates) were not effective to tackle the rising price level.
The Committee also argued that the need to boost output growth was necessary to mitigate the impact of COVID-19 pandemic, especially given the recent removal of fuel subsidy, and adjustment of the exchange rate.
“In our view, while we understand the perspective of the monetary policy authorities, we believe that the sharp rate of price increases in the economy could threaten macroeconomic stability.
“Therefore, we believe that the scope for a yield reversal is plausible in the medium term.
“We expect to see a sustained rise in stock prices in the near term, owing to the liquidity glut in the financial system.
“However, we note the weak overall macroeconomic fundamental, which pose a downside risk to the sustainability of the market rally”, WSTC Securities noted.
FX Inflow into Investors/Exporters Window Plunged 47%
