The cash injections were dominated by the settlement of matured forward contracts estimated at $16 billion in 2018. The sharp increase was triggered by the decision of the apex bank to defend the naira in the face of increased foreign exchange outflows due to foreign portfolio investors (FPIs) exiting the nations financial markets to take advantage of higher interest rate regime in the United States, following interest rate hike by the Federal Reserve.
Also during the year, the CBN increased weekly dollar sales to bureaux de changes, BDCs, by 75 percent to $75,000 per BDC from $40,000 per BDC, in a bid to address increased demand for dollars in the retail segment. Notwithstanding, the upsurge in intervention, the naira depreciated in the Investors and Exporters (I&E) window by N3.67 or 1.0 percent to N364 per dollar at the close of 2018 from N360.33 per dollar at the close of 2017.
Also reflecting the impact of the increased intervention, the nations external reserve dropped to $43.12 billion at the close of 2018 from $47.79 billion on July 5, 2018. Despite this surge, analysts have projected further increase in CBN dollar cash injection in 2019, as well as marginal depreciation of the naira. They said: In the wake of significant forex outflows by FPIs in Q318 Q418, the CBN aggressively increased its rate of forex interventions across all market segments, with the most increase of 69 percent recorded in I&E window in Q3 18.
Given expectations for slower FPI inflows and examination of forward traded rates in the Over-The-Counters (OTC) futures market, we anticipate a marginal depreciation of the naira in H2 19. We, however, expect the CBN to sustain its aggressive interventions across all market segments to ensure stability of the naira. We expect the naira to gain marginally in H219, given expectations for renewed FPI inflows from receding political risks post the general elections.
(Vanguard)
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