Naira pressure to continue as investors stay on the watch

Pressure on the foreign exchange (FX) is expected to continue this week as dollar shortage intensifies, pushing investors to be on the watch for economic recovery, currency dealers and analysts have said.

The naira last week depreciated against the US greenback at all the FX market segments, as dollar liquidity remained tight at the interbank market.

The naira depreciated against the greenback, week-on-week by 7.02 percent to N316.13/$ amid strain in dollar supply, as Central Bank of Nigeria (CBN) did not intervene in the secondary market. Meanwhile, the CBN settled $697 million in matured 1-month futures contract, being total settlement amount to its banking counterparties at N279/$ on Wednesday, July 27, 2016.

The expired contract was replaced by a new one-year contract, NGUS JUL 19 2017, with a total notional amount on offer of $1 billion at N250/$. FX traders executed 51 deals worth $189.37 million between Monday and Thursday. The local currency also depreciated at the Bureau De Change and the parallel market segments by 1.37 percent and 0.80 percent to N370/$ and N378/$, respectively, as unmet dollar demand continued to spill into the alternative market segments.

“We are worried that the increasing gap between the interbank market rate and the parallel market rates may create arbitrage and round-tripping opportunities. In the current week, we expect sustained pressure on the naira as the greenback remains in short supply, analysts at Cowry Asset Management Limited said.

At the money market, the analysts anticipate increase in interbank lending rates on anticipated strain in financial system liquidity.

The Nigerian interbank money market decreased following easing of liquidity conditions. The CBN auctioned 288-day treasury bills worth N87.66 billion at 18 percent stop rate via Open Market Operations in order to mop up liquidity following inflows worth N156.99 billion in matured 205-day treasury bills. Consequently, the net inflows resulted in moderation in interbank lending rates across all tenor buckets: NIBOR for overnight funds, 1 month, 3 months and 6 months declined to 4.56 percent (from 20.17%), 15.36 percent (from 17.99%), 17.17 percent (from 19.28%) and 19.47 percent (from 21.19%), respectively.

However, this week, the CBN will auction treasury bills worth N245.18 billion on Wednesday, August 3; viz: 91-day bills worth N45.18 billion; 182-day bills worth N80 billion; 364-day bills worth N120.00 billion. “We expect their marginal rates to remain high in line with inflationary trend, the analysts said.