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CBN faces liquidity challenge over anticipated N9.6tr inflow

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The Central Bank of Nigeria (CBN) would be contending with liquidity management of an estimated N9.6 trillion inflows, arising from maturing government securities between August and December 2019.

The development, which would see government’s instruments across several tenors mature, with expected rollover, may stoke rise in rates to attract foreign investors.

While there is rising a advocacy for Foreign Direct Investment (FDI), the Foreign Portfolio Investment (FPI), though regarded as hot money, has helped severally to increase the stock of foreign exchange in the country and attracted by rising yields.

Besides, the month of August would kick off the expected system inflow, according to a research by FSDH Merchant Bank Limited, with a total inflow of about N1.54 trillion from the various maturing government securities and the Federal Accounts Allocation Committee.

On the other hand, there would be an approximation of N1.45 trillion outflow from various sources, leading to a net inflow of about N89.81 billion.

Currently, the external reserves continued on its downward trend in July 2019, due to lower crude oil prices and lower FPI inflows in recent times, but attractive rates on CBN’s market instruments may reverse the sliding trend.

The Head of Research at FSDH Merchant Bank, Ayodele Akinwunmi, said there was a marginal increase in capital importation via the Investors’ and Exporters’ Foreign Exchange Window (I&E window) in July 2019, following a drop in June 2019.

“Total capital importation through the I&E window in July 2019 stood at $1.96 billion, marginally up from $1.91 billion.

“The low yield on the fixed income securities in Nigeria is already impacting on the total FPI inflows through the Investors and Exporters’ Foreign Exchange Window.

“Between January and July 2019, Nigeria recorded the lowest FPI through the I & E FX window in July, both in absolute number and as a ratio to the total,” he said.

According to him, companies may wish to issue debt capital at this moment to expand business operations and create additional lines of business that can generate improved earnings for them.

He said the Federal Government may also take advantage of the current low interest rate to access long-term debt and channel it specifically towards building the capacity of the economy to generate more revenue.

“Investment in infrastructure, security, education, healthcare and other social safety net will improve the productivity of the country and provide an opportunity for government to generate future tax revenue.

“This strategy will increase the stock of foreign exchange in the country and may reduce inflation rate. The current low interest rate should not be seen as an opportunity for individuals, companies and governments to increase deadweight debt.

“The low interest rate regime should be seen as an opportunity to access long-term funds that can be used to improve the wellbeing of the economy in order to generate increased revenue for all the economic agents.

“The low interest rate may not last forever, FSDH Research encourages economic agents to enjoy it while it lasts,” he added.


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