#Nigeria FX reserves have been falling off since July. As foreign capital has flowed out over August the CBN has had to actively intervene to keep the NGN in line. We already had a 'queue' issue' which CBN penned as an administrative issue. Is this a convenient coincidence?
Fundamentally despite a pickup in oil at year start, Nigeria swung into a CA deficit of over $1bn. Although some is shifting parts but our services deficit has surged again as the $ illusion is back and we are seeing ourselves as Americans again.
Worse oil is no longer the biggest driver of CBN reserve inflows. In 2018 oil accounted for 26% of CBN USD inflows (1q19: 23%) vs over 90% before 2015. Non oil flows in particular CBN purchases at the spot and swap market are now a big driver half of non-oil FX flows
Perhaps worrying is that CBN interventions now come in the form of forwards. Pre crisis CBN sales were largely spot. Post 2016 we began doing forwards less than $1b a month in 2018 over $1b a month. This is in addition to the usual swaps.
Now foreign holdings of short term securities is a number anywhere btw $10-15b or more. Next year oil pressures will resume as the glut becomes too big for more credible OPEC cuts. Are we comfortable? NGN has stayed at 360 for 3yrs now. One more year will require some adjustments
Will it be a quantity or price adjustment. I think the CBN has already told us its inclination. The restrictions on Milk, food etc are the opening line in this song. Those who've seen it before know this tune very well.
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