Foreign reserves declined on emerging market contagion, say analysts

ANALYSTS AT FBNQUEST HAVE attributed the decline of the gross official reserve to the change of stance of players in the offshore community who are insecure from a contagion of happenings in emerging markets such as Argentina and Turkey.

In a report by the financial advisory unit of First Bank Nigeria Plc., the decline in August can be attributed to the changed stance of some players in the offshore community adding that Nigeria’s gross reserve suffered a loss of $1.28 billion in August.

“July’s decline of $670 million was largely due to the repayment of $500 million by the federal government to holders of a maturing Eurobond that is yet to be refinanced, but the latest decline can be attributed to the changed stance of some players in the offshore community,” the analysts said.

“Nigeria has suffered from contagion emanating from large and liquid EMs such as Argentina and Turkey. Policy flaws have contributed to the very large hits taken by these two markets,” the analysts added.

The country’s foreign reserves declined for the ninth consecutive week, by $117.49 million to $45.51 billion, amidst the apex bank’s continued interventions into the forex market, wherein $210 million was sold, which consisted of $100 million to the wholesale window, and $55 million apiece to the SMEs and invisible segments.

Nevertheless, the naira weakened against the dollar by 0.04 percent to N362.78 in the I&E FX window at the close of last week, while it traded flat at N361 in the parallel market.

In a survey of street markets in Ikeja showed similar trend as the dollar traded at N361 per dollar and the pound sterling traded between N465 and N467, while the Euro traded at N417.

Around the Lagos Airport Hotel axis on Obafemi Awolowo Way, Ikeja, the dollar was sold at the flat rate of N361 per dollar, and the pound began the day at N467 and maintained its status at the close of the day. The value of the Naira against the Euro began the day trading at N417 but closed the day at N416.

In the street market towards the international wing of the Murtala Mohammed Airport, the prices of these currencies followed market movement as the dollar traded at N361, British pounds sterling closed trading for the day at N466/N467, while the Euros traded at N416/N417

At the Bureau De Change (BDC) window, the Naira also traded stable at N360 to the dollar and was bought at N357, while the Pound Sterling and Euro closed at N470 and N417 respectively as traders bought the pounds at N460 and the Euro at N411.

Total turnover in the IEW rose by 14.10 percent to $1.13 billion, with 99.89 percent of trades consummated within the N360-369/USD band.

In the FX forwards market, the dollar to naira rate depreciated in the 1-month (-0.13%) and 3-month (-0.11%) contracts, depreciating to N365.65 and N372.02 respectively, but strengthened in the 1-year (+0.96%) contract to N403.55, while the 6-month contract closed flat at N383.07.

At the fixed income market, the overnight lending rate moderated by 341 basis points week-on-week to 3.42 percent, against last week’s close of 6.83 percent. System liquidity was buoyant throughout the week as inflows from the monthly FAAC disbursement of N326.06 billion and matured OMO bills of N294.52 billion came to play during the course of the week.

Outflows for FX were $210 million and OMO sales were $153.53 billion and inflow of N514.03 billion from matured OMO bills.

The CBN conducted three OMO auction, mopping up a total of N498.57 billion from the system.