Proshare - Facebook Proshare - Twitter Proshare - Google+ Proshare - Linked In Proshare - RSS Feed

New FX Market in Need of Additional Supply

Proshare - Facebook Proshare - Twitter Proshare - Google+ Proshare - Linked In Proshare - WhatsApp


Friday, July 29, 2016 9:55am/ FBNQuest Research 


 The liberalisation of the exchange-rate regime on 20 June remains work in progress. The new unified rate opened at N280 per US dollar and was broadly stable until 16 July, when the CBN started to reduce its daily supply to the market. Because it is the predominant supplier, its rate has since weakened and closed yesterday at N311.35.  

In order to attract offshore portfolio investors (a core element of autonomous fx sources), the monetary policy committee this week hiked the policy rate by 200bps to 14.00%. Our take is that it will have to tighten further. 

The historic data in the chart shows a 39% y/y decline in CBN inflows to US$1.51bn in May 2016. For aggregate inflows (including autonomous sources), there was a smaller fall of 28% y/y over the same period to US$3.93bn.


Pressures on the domestic oil industry were disproportionately painful therefore for CBN inflows. The price of Bonny Light averaged US$65.1/b in May 2015, and US$47.6/b one year later. Production slumped from 2.05 mbpd in May 2015 to 1.70 mbpd or lower.


The non-oil sector accounted for US$1.06bn of total autonomous inflows of US$2.42bn in May 2016. The share of non-oil exports was just US$173m.


CBN outflows amounted to US$1.71bn. We all know that they did not satisfy demand because the CBN was rationing fx to contain the depletion of official reserves. When it launched the new regime on 20 June, it entered into spot and, mostly, forward contracts of close to US$4.0bn, which, it maintained, would clear the backlog accumulated since the beginning of the year.




The dramatic increase in inflows in July 2015 is explained by one-off receipts from the domiciliary accounts of ministries, departments and agencies.

Related News
Provisioning For Foreign Currency Loans
Sales of Foreign Currency Proceeds of International Money Transfers to BDC Operators
Onboarding Corporates on FMDQ-Advised FX Trading & Surveillance Systems
Externalisation of Differentials on OTC FX Futures Contracts for Foreign Portfolio Investors
Nigeria Banks Absorb Effective Devaluation
The Nigerian OTC FX Futures Market…A Panacea for the FX Needs of Corporates in Nigeria
The Floating Exchange Rate and You - FDC
The Nigerian Spot FX Two-Way Quote Market Goes Live Post Revised CBN Guidelines Release
Nigeria's new FX policy - Implication & Impact @Friday
BREAKING: Window for FXPMD has been Thrown Open to every Deposit Money Bank
New FX Policy: The CBN Segregates Banks… Who’s in, Who’s out?
Wisdom Nuggets – Rescuing and Defending the Naira
Impact of a Unified Exchange Rate and Assessment of Playing Field
Flexible Exchange Rate: The Bitter Pill
Guidelines for Primary Dealership in Foreign Exchange Products
How the CBN Naira-Settled OTC FX Futures Market Will Work
Exchange-rate flexibility beyond expectation
The new fully Floated FX Market – In a Nutshell
Implications for Markets as the CBN finally floats the Naira
The Nigerian Managed Float Exchange Rate System

Related News