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Foreign investors pump $28 billion into I&E window

Inject $2bn in 2 weeks
CBN intervenes with $262.5m
Analysts disagree on December inflation rate

By Babajide Komolafe

FOREIGN investors increased  their patronage of the Nigerian foreign exchange market to $28 billion last week, up by $2 billion in the first two weeks of the year.

Financial Vanguard analysis of  data from the Financial Market Dealers Quote (FMDQ) revealed that investors pumped about $2 billion into the window in the first two weeks of the year, prompting the volume of dollars traded in the window to rise to $28 billion from $26 billion at the end of 2017.

Last week, the volume of dollars traded jumped by 196 percent to $1.478 billion from $499.47 million recorded the previous week.

Nigerian Stock Exchange

As a result, the naira appreciated 73 kobo in the I&E window last week as the indicative exchange rate dropped to N360.41 per dollar on Friday from N361.14 per dollar the previous week.

The increased dollar supply also enhanced the stability of the naira in the parallel market, where the exchange rate remained N363 per dollar since the beginning of the year.

Also reflecting the impact of the increased dollar supply, the nation’s external reserve rose by $681 million in the first two weeks of the year.

Data from the Central Bank of Nigeria (CBN) showed that the external reserves rose to $39.446 billion on Thursday from $38.765 billion at the end of December last year.

CBN intervenes with $262.5m

Encouraged by the increased dollar supply and rise in external reserves, the CBN on Friday intervene in the foreign exchange market with $262.5 million.

Announcing the intervention, Acting Director, Corporate Communications, CBN, Mr. Isaac Okorafor said: “In its first Retail Secondary Market Intervention Sales (SMIS) for the year, the Central Bank of Nigeria (CBN) on Friday, January 12, 2018, intervened in the inter-bank Foreign Exchange Market with the total sum of $262,500,000”.

He said that intervention was in favour of the agricultural, airlines, petroleum products and raw materials and machinery sectors, adding that the releases remained targeted at boosting production and trade in addition to sustaining liquidity in the market.

Analysts disagree on December inflation rate

Meanwhile, as economic operators await the release of the inflation rate for December 2017 by the Nigeria Bureau of Statistics (NBS) this week, analysts are divided over the direction of inflation rate for the month.

Citing the impact of base effect, naira stability and decline in the global Food Price Index (FPI), analysts at FSDH Merchant Bank projected that the inflation rate will drop further to 18.95 percent in December.

However, analysts at Lagos based Financial Derivatives Company Limited projected inflation will rise to 15.94 percent in December, due to the fuel scarcity crisis and impact yuletide induced increased consumer spending.

Explaining the basis for their inflation projection, FSDH analysts said: “FSDH Research expects the inflation rate (year-on-year) to drop to 15.85 percent in December 2017 from 15.90 percent recorded in the month of November. The expected decrease in the inflation rate will be driven by the base effect.

“The December 2017 monthly Food Price Index (FPI) from the Food and Agriculture Organization (FAO) shows that the Index averaged 169.8 points. The Index was down by 3.31 percent compared with the revised November 2017 figure. According to the FAO, the latest performance of the Index was largely driven by a sharp fall in dairy, vegetable oils and sugar prices.

“Our analysis indicates that the value of the Naira remained stable at both the inter-bank and parallel foreign exchange markets. The Naira closed at N306 per dollar  and N363.50 per dollar   same as the previous month at both the inter-bank and parallel markets respectively. The drop in the international prices of food reduced the pass-through effect of imported goods on local prices.

“The prices of most of the food items we monitored in December 2017 moved in varying directions, leading to 1.08 percent increase in our Food and Non-Alcoholic Index.

On their part, FDC analysts explained: “We forecast that headline inflation will creep up to 15.94 percent in December 2017, from 15.90 percent in November. This will be the first increase after 10 months of consecutive marginal declines (cumulatively 1.88 percent).

“The fuel crisis which started in December 2017 deteriorated further undermining Christmas celebrations. The shortage in the supply of PMS led to a sharp increase in the unofficial pump price from N145 per litter to as high as N250 per litter  in filing stations and in excess of N400 per litter  at the black market.

The immediate impact was felt on domestic transport fares, which increased by over 100 percent. Other sectors of the economy, with no link to petrol, also exploited the uptick in transport costs. This crisis exposes the ineffectiveness of price controls in emerging markets such as Nigeria.

The DPR and NNPC’s efforts to enforce the pump price at N145 per litter  proved abortive.

“Traditionally, there is increased consumer spending in December associated with the Christmas season. Festive-sensitive goods such as rice, chicken, turkey and vegetable oil, recorded price increases. Non food commodities also recorded price increases such as air and road transports.”


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