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Experts list options for CBN on prudent foreign reserves mgt

Experts list options for CBN on prudent foreign reserves mgt

As the international crude oil markets continue to exhibit serious volatility following the Coronavirus pandemic and raging price war between Russia and Saudi Arabia resulting in Brent crude price plunging 24%, dropping from US$34.4/barrel on March 9th to US$33.7/barrel on Friday, investment experts have lined up options for the Central Bank of Nigeria (CBN). The worrisome development has heightened anxieties about the possibility of the devaluation by the Central Bank of Nigeria of the national currency (Naira) as the external reserves dipped 0.1% week-on-week (w/w) to US$36.2bn last Wednesday with no prospect for accretion in the near term.
The CBN spot rate appreciated 5 kobo w/w to close at N306.95/US$1.00 while at the parallel market, rate opened at N360.00/US$1.00 and depreciated N20 to close at N380.00/US$1.00. At the Investors’ & Exporters’ (I&E) Window, the NAFEX rate depreciated N1.76 to close at N368.47/US$1.00. Activity level in I&E Window declined last week as total turnover rose to US$1.3bn from US$3.0bn recorded in the previous week.
Appraising the developments in the markets, analysts at Afrinvest have projected that “going forward, we expect sustained downtrend in capital flows following global risk-off sentiments due to the COVID-19 pandemic.
“The global decline in oil prices amid oversupply and falling demand for oil raises Nigeria’s risk, hence we expect foreign investors to be reluctant to hold Naira assets”, they added.
The analysts also anticipated weaker export growth due to sliding oil prices ($32.9/bl). They predicted:  “With the major oil-producing countries engaged in a price war, we are not optimistic that the removal of curbs on Nigeria’s oil output would support more sales. We also expect a slowdown in imports given the disruptions to global supply chains and softening economic activities among trading partners such as US, Europe, China and India. “The combination of trade deficit, negative current account balance and weak capital flows mean there would be a sustained moderation in external reserves, thus increasing the need for currency devaluation.” The Managing Director, Cowries Asset management, Johnson Chukwu, in his analysis noted that the CBN stood in a difficult situation at the moment, pointing out that if the apex bank introduces further capital control, it will amount to pressing the panic button and a lot of people would want to exit the market, especially the foreign portfolio investors (FPIs). According to the investment expert, the FPIs are one of the options that are critical in moderating the level of erosion of the reserves.
He said: “I think what the CBN has to do is allow for local investors to participate in the open market operations (OMO).

Source: https://www.dailytrust.com.ng/experts-list-options-for-cbn-on-prudent-foreign-reserves-mgt.html