The Central Bank of Nigeria has kept the Naira steady by depleting the Foreign Reserve balance to make sure the necessary FX demand is met.
abokiFX research team observed that CBN has increased the supply of forex to the banks by steadily depleting the reserve as the price of crude oil maintains a steady climb. The increase in crude oil price is expected to beef up the foreign reserves as crude steadies above $40pb.
At the beginning of April 2016, the foreign reserve balance was:
01/04/2016 Foreign Reserve $27.9bn
08/04/2016 Foreign Reserve $27.6bn
15/04/2016 Foreign Reserve $27.4bn
The foreign reserve which is expected to increase as crude oil price exceeds the governments benchmark price of $38pb is currently trading at $41pb. This perhaps gives CBN some slack to support the Naira by increasing dollar supplies to the banks.
abokiFX would continue to monitor the price relationship to see the impact of the parallel market should the price of crude oil dip below $38pb for the remaining part of the April.
If the price continues to rise, then dollar supply in the system will improve and further strengthen the Naira to aboiFX target of NGN315 to $1.
APRIL UPDATE – 2016 ………………………………………………..11/04/16
EXPECT NAIRA TO APPRECIATE SLIGHTLY AGAINST DOLLAR, POUND AND EURO
TARGET PRICE RANGE: N315 : $1 AND N440 : £1 AND N340 : €1
The FX market got saturated in March as demand gradually waned. For April, abokiFX expects the following factors to impact the Naira positively thereby, forcing a slight appreciation against the three major currencies:
1. CRUDE OIL PRICE – The crude oil price has dropped below $40 a barrel but abokiFX expect it to climb back up this month. This means the Federal Government’s budget of $38 per barrel is currently under some pressure but not enough to cause a CBN to cut supply of FX to the banks. As long as Nigeria’s output is maintained, the government should be able to keep a steady foreign reserve. This will help increase the intervention fund from CBN which should improve the dollar supply in the market. CBN might also start to consider relaxing its FX policy as the reserves improve. Should the price dip, this will generate pressure on the Naira.
2. OPEC CUTS – Negotiations are still going on, though Iran is proving difficult. Indications are this is likely to happen, with a possibility of an agreement this month. This will increase the crude value above $40 a barrel thereby helping build our foreign reserves.
3. SPECULATORS – Devaluation of the Naira is still expected though speculators have reduced their demand for FX, waiting to see if the government will run out of ideas and be left with no alternative but to devalue. This should help the Naira appreciate in April.
4. REDUCED CAPITAL OUTFLOWS – abokiFX expects the capital outflows from the country to reduce as most of the pandemonium in the economy cools down and a clearer direction is being charted. Most investors with capital flight intentions have achieved that and we do not expect any more pressure in this area hence, reduced demand for FX.
5. SCHOOL FEES – abokiFX does not see much pressure from this FX factor as some overseas school fees were paid on an annual basis. CBN has also agreed to provide parents with FX for school fees which helps lift the pressure off the parallel markets. This should help the Naira appreciate in April.
6. HOLIDAYS – There are no major holidays occurring in April so there would be less demand for FX which will also help the Naira appreciate.
7. Q1 INVOICES FOR IMPORTERS – Importers are gradually negotiating new payment terms with their overseas suppliers which has helped reduced the demand for FX. This is expected to continue in April as importers start to remit funds to their suppliers.
8. CBN INCREASES SUPPLY TO MANUFACTURERS – The Central Bank has agreed to increase FX supply to the manufacturers which is good news but also has a negative impact. This means manufacturing companies do not have to head to the parallel market seeking FX which will help the Naira appreciate. The downside is that this depletes the foreign reserve slightly.
9. CBN FX INTERVENTION FUND – The intervention fund has helped stabilize the Naira value and abokiFX believes this will continue to be the case in April. This will help maintain an equilibrium in the market as it occurs weekly and might even be increased to bi-weekly if the CBN decides to be generous.
10. FOREIGN RESERVES STILL LOW – The Foreign reserves which was steady at $27.8bn all through March has slipped to $27.6bn. This is also because the CBN has increased its supply of FX to the economy. As long as the reserves do not slip to $26bn in April, abokiFX does not expect any detriment to the value of the Naira.
11. INTERNATIONAL OIL COMPANIES TO SUPPORT MARKETERS – CBN has reached a workable agreement with the International Oil companies (I.O.C) and NNPC to supply Forex to Petrol marketers for the importation of fuel. This takes a huge demand off the parallel markets and helps the Naira appreciate.
12. WEAKER POUND AND DOLLAR – On the international scene, the GB pound continues to weaken against major currencies because of the Brexit referendum coming up in June. The US Dollar is also seen weakening as Yen and Yuan take position. This will help the Naira appreciate in the international market in April which should help the Naira appreciate in the parallel market.
Unless the Dollar / Pound / Euro gain excessively in the international markets, rates should be in the range predicted above for the month of April………………..11/04/16