Analysts highlight risks of Yuan/Naira currency swap

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    As Credit to private sector slows to N22.44tr in March

    Says Excess liquidity to persist as TBs record N808bn oversubscription

    Last week the CBN announced the execution of a $2.5 billion currency swap agreement with the Peoples Bank of China (PBoC), aimed at enhancing trade relations between Nigeria and China.

    Analysts at Lagos based Afrinvest Limted however noted that while the agreement will be beneficial to the Nigerian economy in several ways, it portends some risks to the economy.

    They said: “Whilst we are excited by the symbolism of this agreement, we also note that the impact on the economy will be limited by the relatively small size of the Swap Line which could barely cover 40 percent of Nigeria’s Chinese import in a single year.

    Furthermore, a key downside risk to the agreement is that the ease of transaction with a highly competitive country like China could worsen Nigeria’s trade balance and weaken domestic manufacturing capacity. We think this concern is justified, particularly in a period of heightened trade skepticism.

    Yet, it also emphasizes the need to deepen domestic policies on improving competitiveness.

    Credit to private sector slows to N22.44tr in March

    Meanwhile, credit to the private sector slowed by N180 billion or 0.78 percent to N22.44 trillion in March.

    This sharply contrast the N630 billion or 2.88 increase recorded in February when credit to private sector rose to N22.62 trillion.

    Credit to the government also fell by 10.84 percent to N3.82 trillion in March, reflecting decline in domestic borrowing by the government especially through TBs. The above were highlights of the CBN’s Depository Corporation Survey for March released last week.

    According to the survey Broad money rose month-on-month (m-o-m) by 1.184 percent to N24.30 trillion in March driven by 8.49 percent m-o-m increase in Net Foreign Assets (NFA) to N15.62 trillion, which more than offset a 9.76 percent m-o-m decrease in Net Domestic Assets (NDA) to N8.68 trillion.

    The growth in NFA was partly attributed to increase in oil dollar revenue (boosting external reserves) and further strengthened Nigeria’s position as a net lender to the rest of the world.

    On domestic asset creation, the decrease in NDA resulted from a 2.39 percent decline in Net Domestic Credit (NDC) to N26.27 trillion, accompanied by a 1.71 percent m-o-m increase in Other Liabilities (net) to N17.58 trillion in the month under review.

    Further breakdown of NDC showed a 0.78 percent m-o-m moderation in Credit to the Private sector to N22.44 trillion (share of NDC increased to 85.44 percent from 84 percent), accompanied by a 10.84 percent decrease in Credit to the Government to N3.82 trillion.

    Naira depreciates as CBN injects N559m

    The naira last week depreciated in the Investors and Exporters (I&E) window even as the CBN increased its weekly intervention to N559.34 million.

    Data from FMDQ showed that the indicative exchange rate for the I&E rose to N360.75 per dollar last week from N360.41 per dollar the previous week, translating to 34 kobo depreciation for the naira.

    The local currency however remained stable at N362 per dollar in the parallel market.

    Meanwhile, volume of dollars traded in the I&E window dropped marginally by 2 percent to $1.02 billion last week from $1.04 billion the previous week.

    The CBN on its part increased its weekly intervention to N559.34 million comprising $210 million injection on Wednesday and $349.34 million on Friday.