Culled—Proshare

November 18, 2019

By  FBNQuest Research 

Fx outflows of US$6.15bn through the CBN in August were the highest since September 2018. The commentary in its latest Monthly Report highlights a 32.5% increase in interbank utilization. We see from separate data from the markets that the CBN supplied US$1.83bn to the investors’ and exporters’ window (NAFEX) in the month to smooth an acceleration of exits by foreign portfolio investors (FPIs). In calmer market conditions, of course, the CBN is able to buy fx, accumulate reserves and deflect attention from its exchange-rate policies. 

Fx inflows through the CBN picked up to US$4.90bn in August, a little above the 12-month average. The commentary notes a fall in the average oil price in the month.

It does not quantify oil and non-oil inflows. The clear implication, however, is that non-oil inflows were higher. In other months Eurobond proceeds and/or fx purchases would have provided the explanation. Among the list of components of such inflows, we think that loan drawings, and interest on reserves and investments drove the improvement. 

There was therefore a new outflow of US$1.25bn through the CBN in September. This has been the case for all but three of the past 12 months. 

The narrative changes dramatically when we add autonomous (non-CBN) transactions, which were inflows of US$5.59bn and outflows of US$0.32bn

Fx flows through the CBN (US$ bn)

Sources: CBN; FBNQuest Capital Research

This data series, along with those covering public finances, the balance of payments and official reserves, demonstrates the need for the monetary authorities to keep the FPIs invested in Nigeria. Access to the CBN’s open market operations has been denied by its circulars to domestic non-bank players but not to the FPIs.