Nigerian’s External reserves to go below $46bn in June
Following the slowdown in monthly accretion by 13 percent last month,There are indications that Nigeria’s external reserves will go below the $46 billion mark this month.
According to our source, the external reserves maintained upward trend in May rising to $45.109 billion from $44.792 billion in April. This represented increase in accumulation of $317 million in May, down by 13 percent compared to $364 million accretion recorded in April.
The $317 million accumulations recorded in May also represented 85 percent decline when compared to the $2.13 billion accretion recorded in March.
The slowdown in accumulation to the reserves in May, especially in the face of high crude oil price, which stood at $75.76 per barrel as at May 17, indicates significant reduction in dollar inflow from foreign portfolio investors, FPIs, during the month.
We also Recall ,that the sharp accretion of $2.13 billion to the reserves in March was driven by increase in crude oil price and huge dollar injection by foreign portfolio investors, FPIs, seeking to take advantage of double digit interest rates on Nigeria’s fixed income instruments, namely treasury bills and FGN bonds, to maximise returns on their investment.
However, there had been predictions by Analysts at FSDH Merchant Bank,that the huge inflow from FPIs recorded in March would not be sustained due to decline in yields in the fixed income market.
“We believe the increase in FPI was as a result of foreign investors’ interest in the Nigerian fixed income market on account of attractive yield and relatively stable exchange rate. “FSDH Research notes that the inflows may not continue because of the drop in yields and interest rate in the Nigerian financial market”, they said.
The drop in yields on fixed income instrument persisted last week with the Central Bank of Nigeria, CBN, further reducing treasury bills, TBs’ stop rates.
The fall in yields, which is expected to persist this month, will continue to undermine dollar inflows from FPIs and hence constrain accretion to the nation’s external reserves. Consequently, while accretion to the external reserves is expected to persist in June, it may not surpass the level recorded in May and hence limit the reserves from rising to or above $46 billion in June.
