Naira may weaken at alternative market as demand for dollar cash increases

…inter-bank rates to moderate on N535.0bn bond maturity

The nation’s currency, the naira, may this week weaken at the alternative market segment as traders and travellers increase their demand for dollar cash in response to the limit on dollar denominated cards, analysts at Cowry Asset Management Limited have said.

The Central Bank of Nigeria (CBN) last week declared that the annual transaction limit has been reduced to USD50,000 from USD150,000, while the daily transaction limit has been reviewed to USD300 from the previous USD500. This is in furtherance of CBN’s efforts to reduce the demand for forex and manage the country’s foreign reserves.

Meanwhile, analysts at Afrinvest Securities Limited expect the local unit to continue to trade at the current band of N199.11/US$1.00 and N199.13/US$1.00 this week.

The naira opened last week at the rate of N199.11/US$1.00 at the interbank market, appreciating by 2 kobo relative to previous week. Throughout the week, the local unit traded at a tight range, oscillating between N199.11/US$1.00 and N199.13/US$1.00. The market witnessed inflows worth US$300 million from dollar sales by NNPC on Wednesday. Despite this, the exchange rate depreciated by 2 kobo to close at N199.13/US$1.00 the same day.

At the money market this week, liquidity level is expected to remain moderate on the back of bond maturity of N535.0 billion and T-bills of N169.4 billion expected to hit the system on Thursday.

Last week, money market rates surged high at the beginning of the week as liquidity opening balance was at a low level of N89.9 billion. As a result, the scramble for funds worth N88.1 billion at the Standing Lending Facility (SLF) by deposit money banks (DMBs) brought Monday’s OBB and Overnight rates to their week’s high of 78.3% and 80.3%, respectively. On Tuesday, however, as a result of an improvement in liquidity opening balance (at N108.6 billion), OBB and Overnight rates fell by 2.5% and 1.8% to settle at 75.8% and 78.4%, respectively.

As the scramble for liquidity at the SLF reduced to N68.5 billion on Wednesday, money market rates dropped to 29.2% (OBB) and 30.1% (Overnight). In the same manner, with a liquidity opening balance of N106.8 billion on Thursday, the OBB and Overnight rates further declined to 11.2% and 11.5%, respectively. Due to OMO maturity worth N188.4 billion on the same day, liquidity closing balance on Thursday improved to N215.6 billion. Consequently, money market rates settled at 13.1% for OBB and 13.4% for Overnight on Friday.