Nigeria’s Money Market Stop Rates Fall in Q1 2019 amid USD5.9 billion FPIs Inflows…


Freshly released data from the National Bureau of Statistics showed that Nigeria’s capital importation rose by 216.03%, quarter-on-quarter, to USD8.49 billion in Q1 2019 (and rose on a yearly basis by 34.61%). A breakdown of the Q1 2019 capital imports showed that Foreign Portfolio Investments (FPI) which accounted for 65.58% of the total inflow rose q-o-q by 305.85% to USD7.15 billion (and 56.54% y-o-y).

Other investments (mainly comprised of Foreign Loans and other claims) which constituted 27.97% also increased q-o-q by 45.97% to USD1.09 billion (but fell by 26.54% y-o-y). Similarly, Foreign Direct Investments (FDIs) which constituted just 6.46% registered a q-o-q increase of 40.38% to USD0.24 billion (but fell by 1.32% y-o-y).

A more detailed analysis showed that capital inflows from Equities FPIs rose by 110.36% q-o-q (but fell y-o-y by 6.47%) to USD0.66 billion in Q1 2019.

However, inflows by Bonds FPIs rose by 173.61% q-o-q (and rose y-o-y by 68.41%) to USD0.55 billion in Q1 2019; also, investment inflows by FPIs in Money market instruments surged by 376.95% q-o-q (and by 67.94% y-o-y) to USD5.92 billion. Meanwhile, Foreign Loans rose marginally by 2.62% q-o-q (but declined by 40.70% y-o-y) to USD0.75 billion in Q1 2019.

A breakdown of capital imports by sector showed that investments in banking accounted for 33.60% or USD2.85 billion and rose by 976.57% q-o-q (as well as 141.45% y-o-y). Other sectors which received relatively large inflows include: shares, financing, production and servicing which accounted for 28.32%, 25.21%, 4.93% and 4.83% of the total capital imports respectively.

Furthermore, largest inflow in Q1 2019 worth USD4.53 billion was from United Kingdom (higher than USD2.25 billion in Q1 2018). Following were inflows from the United States and South Africa worth USD1.53 billion (rose from USD1.23 billion) and USD0.76 billion (rose from USD0.49 billion) respectively. Major investment destinations in the quarter under review include; Lagos (USD4.77 billion) and Abuja (USD3.59 billion).

In the monetary sector, CBN depository corporations survey showed a 0.77% month-on-month (m-o-m) decline in Broad Money Supply (M3 money) to N34.90 trillion in May 2019. This resulted from a 11.46% decrease in Net Domestic Assets (NDA) to N15.79 trillion which offset a 10.25% increase in Net Foreign Assets (NFA) to N19.10 trillion.

On domestic asset creation, the decrease in NDA resulted from a 2.20% m-o-m decrease in Net Domestic Credit (NDC) to N32.18 trillion, accompanied by a 8.79% m-o-m rise in Other Liabilities (net) to N16.38 trillion. Further breakdown of the NDC showed a 8.64% m-o-m decrease in Credit to the Government to N7.3 trillion and a 0.13% fall in Credit to the Private sector to N24.86 trillion.

On the liabilities side, the 0.77% m-o-m decline in M3 Money was driven by the 6.97% m-o-m decrease in treasury bills held by money holding sector to N7.07 trillion, partly offset by a 0.93% increase in M2 Money to N27.83 trillion. The rise in M2 was driven by a 0.76% rise in Quasi Money (near maturing short term financial instruments) to N16.44 trillion and a 1.18% increase in Narrow Money (M1) to N11.39 trillion (of which Demand Deposits rose by 1.53% to N9.68 trillion while currency outside banks declined by 0.77% to N1.70 trillion).

Reserve Money (Base Money) climbed m-o-m by 2.60% to N8.15 trillion as Bank reserves spiked m-o-m by 4.66% to N5.70 trillion, partly offset by a 2.17% decline in currency in circulation to N2.11 trillion. We note that the humongous foreign capital inflows into Nigeria’s money market stimulated the strong demand pressure for federal government short-term instruments, especially t-bills; hence, the fall in primary market rates across the maturities.

However, we expect treasury bills rates to move northwards in H2 2019 as real returns on the bills have become negative amid increasing inflation rates. Thus, we expect redirection of capital inflows into the bonds markets (where rates are higher and about 200 bps above inflation rate) as well as equities.

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