The many elements of the CBN’s fx supply

From the CBN’s latest quarterly Economic Report, we comment on its fx supply to authorised dealers. Total supply declined from US$11.88bn to US$9.18bn in Q4 2018 due to a fall in sales for swap transactions and for the interbank market. The largest category for the fifth successive quarter were payments on the maturity of forward fx contracts. The second and third were sales to bureaux de change (BdC) and to NAFEX (investors’ and exporters’ window). Unlike in the previous report, there were no substantive revisions to the last quarter’s figures.

  • The CBN’s swap transactions attract much attention, mostly of a negative nature because they are not captured in its data for gross official reserves.
  • This series, as one other with monthly inflows and outflows on swaps in the CBN’s separate Quarterly Statistical Bulletin, provides some welcome colour. To be fair, we note that many other central banks enter into swap arrangements, and that they do not all share the details in public documents.
  • The quarterly allocation to BdC increased from US$2.41bn to US$2.98bn in Q4, topped up by a bonus for the Christmas season. the figure for the year-earlier period was as low as US$1.19bn. If we are looking to explain such allocations that have few, if any parallels, in the EM universe, we say that the CBN’s pivotal role in supplying the BdC supports its exchange-rate management objectives.
  • Fx sales by CBN to authorized dealers, Q4 2018 (% shares) Total: US$9.18bn

    Fx sales by CBN to authorized dealers, Q4 2018

    Sources: CBN; FBNQuest Capital Research
  • CBN sales to NAFEX in Q4 helped to smooth the exit of retreating foreign portfolio investors (FPIs). The thinking of this community on US monetary policy has since changed again, from a fear of further normalization to relief at its likely ending. We have therefore seen a new surge of inflows into local debt and money markets since the elections, such that the CBN quarterly for Q1 2019 will surely show a marked decline in its fx sales to NAFEX.

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