CBN try­ing to lure FPIs to rollover ma­tur­ing hold­ings at the ex­pense of for­eign re­serves

Business a.m. - - FINANCE & INVESTMENT -

OC­TO­BER SAW THE NIGE RIAN for­eign re­serve drop by $2.2 bil­lion, the largest monthly slump since 2015.

This has raised con­cerns but ex­perts say the CBN is not bor­dered about the fall­ing for­eign re­serve in­stead are look­ing for for­eign in­vestors to rollover ma­tur­ing hold­ings.

The CBN has it­er­ated its pref­er­ence of ex­change rate sta­bil­ity over ex­ter­nal re­serves growth. Hence, it is ex­pected that the cur­rency to re­main rel­a­tively sta­ble in 2018 as con­firmed by God­win Eme­fiele, CBN gover­nor in the last IMF annual meet­ing in Bali.

The price paid for a sta­ble naira is the fall­ing re­serves and higher bond yields needed to prop up the cur­rency and at­tract port­fo­lio in­vestors. Since peak­ing in mid-May, for­eign-ex­change re­serves have dropped by $5.9 bil­lion, or 12 per­cent, to $42 bil­lion.

Yields on the govern­ment’s one-year naira bills have soared more than 450 ba­sis points in that time to 16.6 per­cent, the high­est lev- el the large, this The for­eign Bank year. and truth an­a­lysts re­serves Group re­mains Ltd. at are Stan­dard that still es­ti­mates equate to that al­most the 13 re­serves months of im­ports, which is much higher than the IMF’s rec­om­men­da­tion of at least three months’ worth of cover. The cen­tral bank might get ner­vous if they dip below $40 bil­lion, es­pe­cially with in­vestors get­ting jit­tery about Fe­bru­ary’s elec­tions. Stan­dard Group an­a­lysts said, “Fall­ing re­serves is the price we have to pay to keep the cur­rency sta­ble.

The ef­fec­tive yield on the 1-year T-bill is now about 17 per­cent. With elec­tions just around the cor­ner, we might just need as much as 20 per­cent to con­vince fixed-in­come in­vestors to roll over.”

This was also echoed by an­a­lysts at United Cap­i­tal, who said: “de­spite the FX re­serves down for the fourth month in a row, we think CBN will try to lure the FPIs to rollover ma­tur­ing hold­ings.”

At the OMO auc­tion last week, the cen­tral bank in­tended to mop up N1 tril­lion from the sys­tem, but could only raise N517.62 bil­lion from the mar­ket.

The 182D and 364D bills printed at 13.5% and 14.4% stop rates re­spec­tively, ef­fec­tively yield­ing 14.5% and 17% re­spec­tively, leav­ing money mar­ket rate rel­a­tively un­changed as in­flow from OMO ma­tu­ri­ties sub­dued the out­flows from OMO sales.

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