Thursday, September 07, 2017 / 10:57AM /FDC
The purchasing managers’ index increased marginally in the month of August to 58.5 from 56.3 in July according to FBN Quest. This was due to increased fx intervention by the CBN, improved access to fx and improved utilization of local substitutes (particularly in the foods and beverage segment). This impacted positively on the manufacturing sector.
However, the CBN PMI recorded a decline to 53.6 from 54.1. One of which is the high cost of funding interest payments. Nonetheless August’s PMI numbers highlight a positive step in the path towards economic recovery.
The manufacturing sector is expected to remain in positive territory as macroeconomic fundamentals improve.
Average power output from the national grid was 3403.75MWh/h in the period 16th – 31st August, 3.3% higher than 3,295MWh/h recorded in the first half of the month. In spite of this improvement in ongrid power supply, high frequency constraints and gas constraints in key stations such as Omotosho II, Trans Amadi and Geregu II are capping further output improvements.
The august break in the second half of the month has led to lower rainfall and as such reduced capacity for hydroelectric generation. As we enter the final month of the raining season, we expect increased hydroelectric generation.
The money market remained illiquid in the second half of August. The average opening position of banks in the second half of august was N125.49bn short (August 1631) compared to the first half’s average of N88.86bn short. The decline in market liquidity was as a result of increased CBN interventions in the form of OMO auctions, and funding for dollar positions.
Average NIBOR (OBB, O/N and 30day) was 21.69% pa within the review period, relative to 33.79% in the first half of the month. The OBB and O/N rates spiked to as high as 91.67% pa and 96% pa respectively as at the 23rd of August. These rates closed August at 7.33% pa and 8.42% pa respectively.
In the Primary market, average yields on Treasury Bills ranged between 13.8% 18.99% for the 91 to 182 day bills. Lending rates have remained flat at an average of 25%.
Liquidity in the market is likely to recover in the coming months following further disbursement of budgetary funds as well as the inflow of cash from matured OMO obligations. Hence, short term interbank rates are expected to taper.
At the parallel market, the exchange rate closed at N365/$, compared to N370/$ at the end of the first half of August. The naira had been trading above N368 in the review period, depreciating to N370 as a result of increased forex demand from Hajj, tuition fees and summer obligations. The IEFX window also recorded a miniscule appreciation of 0.75% to close at N359.67/$. Average Turnover in the IFEX window was $168.78mn in the latter part of the month.
In the interbank market, there was a slight depreciation of 0.07% to close at N306.35/$ in the same review period. The spread between the parallel and interbank market rates narrowed to N59 as at 31st of August, relative to N63.85 at the end of the first half of the month. CBN intervention in the market totalled $754mn in the month of August ending August 21st.
We expect the pressure on the exchange rate to dissipate post hajj pilgrimage and end of summer. Nonetheless, the naira is likely to revert to the range of N365 N370/$ in the short term.
As pictorially illustrated, the pace of accretion in the gross external reserves level has remained aggressive, albeit some slight deviations from the trend. This is likely attributable to oil price movements in the global market. Also, there is a noticeable ramp up in Nigeria’s oil production. As at 29th of August, the external reserves level was at $31.81bn, 0.92% higher than its value at the end of the first half of the month. The gross external reserves import and payment cover is now at 8.81 months, compared to 6.87 months at the end of the first half of August.
The accretion in the reserves level is dependent on both domestic (peace in the Niger Delta, thus relatively stable oil output) and external factors (oil prices in the global market). If this continues we might experience a slowdown in the pace of accretion.
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