Naira pressure expected as foreign reserve may decline below $30bn

Pressure on the naira is expected this week as analysts predict further decline in foreign exchange reserves below the $30 billion marks.

A report by Cowry Asset Management Limited revealed that the naira/$ last week remained stable as the apex bank continued to fund lenders as well as Bureaux de Change (BDC) operators.

The bi-weekly $60,000 sales to BDC operators were sustained in spite of a 0.58 percent w-o-w decline in foreign exchange reserves to $30.06 billion.

Week-on-week, the CBN clearing rate and interbank rate closed steady at N197/$ and N199.10/$, respectively. Also, the naira/$ closed flat at N224/$ and N226/$ at the BDC segment and the parallel or black market segment, respectively.

Meanwhile, most forward contracts at the OTC market indicated expectations of likely depreciation of the local currency against the greenback. The 1-month forwards, 3 months forwards and 6 months forwards depreciated w-o-w by 0.8 percent, 0.1 percent and 0.8 percent to N202.13/$ (from N201.96/$ in the preceding week), N209.40/$ (from N209.39/4), and N218.91/$ (from N218.74/$), respectively.

However, the 12 months forwards appreciated by 0.2 percent to N232.79/$ (from N233.26/$).

At the money market last week, the financial system during the week remained awash with liquidity following the inflow of N1.1 trillion that came in on Friday (09/10/2015), which brought the opening balance on Monday to N1.2 trillion, according to a report by Afrinvest Securities Limited.

Consequently, the Open Buy Back (OBB) and Overnight Rate (O/N) opened the week at 0.8 percent and 1.2 percent, respectively. The liquidity condition stayed upbeat but gradually moderated to N756.4 billion on Wednesday as the OBB and O/N firmed at 0.8 percent and 1.1 percent in that order.

However, with the inflow of N283.7 billion in OMO repayment on Thursday, liquidity level improved to N1.0tn while the OBB and O/N remained stable at Wednesday level. At the close of trade on Friday, average liquidity level closed at N986.0bn while the average OBB and O/N rates settled at 0.8 percent and 1.1 percent accordingly.

Investors’ appetites for short-term securities continue to gain traction as evident in the trajectory of T-bills yields in the last few weeks. Average yields during the week pegged at 9.1 percent after declining to 8.3 percent from the open of 9.5 percent.

Bullish sentiments on the shorter-term T-bills instruments drove down short term yields to an average of 5.8 percent from 6.5 percent in the previous week. In the coming week, T-bills maturity worth N138.0billion is expected to hit the financial system while the CBN will be conducting a Primary Market Auction (PMA) of the same amount in 91-day, 182-day and 364-day instruments.

“We expect the level of liquidity in the system to remain upbeat in the coming week while we opine that T-bills rate will continue to respond to short-term macroeconomic manifestations,” Ayodeji Ebo, head, investment research and his team of analysts in Afrinvest, said.

HOPE MOSES-ASHIKE