CBN to pursue reserves accretion in 2018
The nation’s improving economic indices, particularly the manufacturing and non-manufacturing sectors’ nine-month positive readings have been attributed to rising liquidity in the foreign exchange (forex) market.
In the same vein, financial experts have identified the source of resurging forex liquidity and stability in the sectors as the emergence of the popular Investors’ & Exporters’ (I&E) FX Window, which has been operational since 10 months and stable oil prices.
Consequently, with expectations of sustained positive indices in the last quarter of the year, the experts said there is need to sustain to sustain the tempo and make maximum use of the favourable times in the New Year.
Analysts at Afrinvest Securities Limited, in their weekly market update, noted that improved liquidity in the FX market remain a key determinant of the performance of the broader economy, as recent developments in manufacturing and non-manufacturing sectors point to.
They however, said that despite the evident improvements so far in 2017, the gains still remain “fragile” as the impact is yet to be reflected in Non-Oil sector growth figures, which was unimpressive in third quarter data.
Speaking on the rebounding real and service sectors’ numbers, they observed that manufacturing index has expanded for the ninth consecutive month, even reaching a record high of 59.3 points in December.
The positive development spanned across production level; inventories new orders; supplier delivery time; and employment level, which were facilitated by improving forex liquidity.
The sub-sectors particularly impacted were petroleum and coal products, which advanced the most, followed by textile, apparel, leather and footwear, cement, transportation equipment and paper products.
Others were food, beverage and tobacco products; furniture and related products; plastics and rubber products; non-metallic mineral products; printing and related support activities; appliances and components; chemical and pharmaceutical products; and fabricated metal products, among others.
Under the renewed forex intervention and management policy of the Central Bank of Nigeria since February 2017, these sectors were given opportunities to obtain the much-needed forex liquidity to sustain activities amid dwindling forex earnings by the country.
The Acting Director of Corporate Communications Department, CBN, Isaac Okorafor, who confirmed the new level of the nation’s reserves at $40.4 billion yesterday, attributed the accretion to the bank’s strategy in effectively managing demand by various sectors.
He said that restricting access to official market against importers of the 41 items is the major turning point that helped to stop the hemorrhaging of the country’s external reserves, which hitherto witnessed heavy depletion due to huge import bills and other debt obligations.
According to him, the CBN policy had ensured a decline in Nigeria’s import bills from over $5 billion monthly in 2015 to about $1.5 billion in 2017.
He expressed optimism that with the determination of the Bank and the cooperation of the fiscal authorities, the external reserves will continue to enjoy more accretion in the course of 2018.
Olutola Oni of the Investment Research at WSTC Financial Services Limited, said with the lessons of the recent disruption in economy still fresh with the government, it is believed that it will be more inclined to managing the resources.
For the financial market, he said: “We believe there are too few incentives for the harmonisation of rates across forex market segments in 2018, as increased exchange rate exposure (resulting from the FGN’s debt substitution strategy) will be an additional reason to avoid convergence of rates in the year.
“We expect the CBN to adopt a dovish stance in 2018, although this should bear some implications on inflation and capital flows.
“The equities market is expected to be driven by liquidity in the forex market, improving economic activities, impressive corporate performance and softer yields on fixed income securities in H1 2018.
“However, we reckon that resurgence of tighter liquidity in the forex market and heightened election-related uncertainties in the year may hamstring overall market performance in the second half of 2018,” he said.