EUR 3.26 For Business Accounts Only

Economic Update - April 2018

• CBN slows tap across markets: Activities at the Investors and Exporters Window (IEW) slowed in the month of April as overall inflow and outflow declined double-digits to $2.6 billion and $2.3 billion respectively, with net-supply moderating 60.2% MoM to $328 million compared to the adjusted $823 million recorded in March. For spot transactions (-20.9% MoM to $4.5 billion), the decline stemmed largely from cut back in both sales (-41.4% MoM) and purchases (-18.3% MoM) at the window, while the steep decline in forward transactions (-82.5% MoM) was largely due to the absence of maturing opened transactions during the month which limited sales transactions. With the impressive flows at the IEW over the last one year and constant net-supply which has given the apex bank an easy reservoir to shore up its reserves, we believe the naira will be in a good state for the rest of the year with a possible convergence of the exchange rates to the NAFEX rate in near term.
• Sino-Nigeria currency swap… a drop in the ocean: Last week, the People’s Bank of China (PBoC) announced the approval of a $2.4 billion (RMB 15 billion/N720 billion) bilateral local currency swap agreement with the Central Bank of Nigeria (CBN) after two years of negotiation. The facility which is valid for three years (subject to extension upon mutual consent) is aimed at facilitating trade and direct investment between China and Nigeria, with the scope of safeguarding financial market stability and minimize exchange rate risk in both countries, especially Nigeria. Given the size of the deal (valid for three years) relative to Nigeria imports from China of $6.1 billion in FY 17 (FY 16: $6.9 billion, FY 15: $12.2 billion) – assuming three years estimate of $18.4 billion – the swap deal is a drop in the ocean and we do not see any significant impact on dollar demand for China imports which is expected to retrace to the level over 2015 as FX liquidity and improving industrial production ignites inventory buildup. More details to follow.
• Headline inflation nose-dives in March, hits 24-month low: Nigeria’s disinflation continued for the fourteenth consecutive month as headline inflation in the month of March declined 99bps to 13.3% YoY from 14.3% YoY in the prior month. The sizeable drop in headline inflation stemmed from both the core (-53bps to 11.2% YoY) and food (-151bps to 16.1% YoY) baskets with favorable base effects from the sub-components being the primary driver of the decline. On a MoM basis, headline inflation rose 4bps to 0.84% from 0.79% in February, with much of the increase arising from core inflation which rose 9bps to 0.84%. According to breakdown from NBS, increases in HWEGF—Housing Water Electricity Gas and other Fuels (+8bps to 0.69%), Clothing & Footwear (+3bps to 0.79%) and Education (+8bps to 0.82%) underpinned the increase in core inflation. Going forward, base effects from higher food prices should continue to provide benefits to CPI readings. Thus, while higher housing rental rates will inflict pressure on core inflation, we see downward pressure on inflation numbers in the preview month supported by base effects from higher cereal prices in April 2017. This backdrop informs our call for an 81bps MoM moderation in overall headline reading to 12.5% YoY in April.

See attached for full report.