Analysts want CBN framework for medium-long term FX management

The Central Bank of Nigeria (CBN) has been called upon to come out with a clearly stated framework that outlines the medium to long term direction for FX management to resolve the prolonged currency market challenges, in order to boost investors’ confidence, close the huge spread between official/interbank and BDC/parallel market rates and check creeping inflation in the country.

Ayodeji Eboh, head, investment research ,Afrininvest Securities, and his team of analysts, stated this in a report made available to BusinessDay at the weekend.

However the foreign exchange market has remained stable for a number of weeks as demand for dollars stays largely unmet by the apex bank.

Last week, the exchange rates at all the segments of the foreign exchange market remained stable, with no sharp rate movement observed. The official CBN rate remained at N197.00/US$1.00. The naira appreciated to N320.00/US$1.00 on Thursday at the Bureau-de-Change after trading at N321.00/US$1.00 on Tuesday and Wednesday. The exchange rate at the parallel market was also fairly stable throughout the week as the naira exchanged at N323.00/US$1.00 on all trading days, except on Wednesday when it appreciated to N322.00/US$1.00.

Meanwhile, gross external reserves continue to decline, as it dropped by 4.6 percent Month-on-Month to US$26.52 billion on Wednesday, 4th May 2016 from $27.79 billion on 4th April 2016.

At the money market last week, the financial system liquidity opened the week at about N300.1 billion on Tuesday (being the first trading day of the week due to Monday’s public holiday). Open Buy Back (OBB) remained at the previous week’s closing levels of 3.1 percent, while Over Night rates declined 0.2 percent to 3.5 percent by the end of Tuesday’s trading session. However, OBB and ON rates rose 0.2 percent and 0.3 percent to 3.3 percent and 3.8 percent on Wednesday, consequent on Deposit Money Bank’s FX provisioning, rising to 3.6 percent and 4.2 percent at the end of Thursday’s trading session.

As expected, there was a T-bills maturity of about N150.6bn on Thursday but the impact of this on liquidity was offset by a rollover of the same net amount. OBB and ON settled at 3.6 percent and 4.1 percent on Friday, up 0.5 percent and 0.4 percent Week-on-Week.

In the T-bills market, average rate started the week 0.1 percent higher than last week’s average closing rate of 8.2 percent. There was a T-bills auction on Wednesday where N45.2 billion, N23.4 billion and N82.0 billion worth of the 91-days, 182-days and 364-days T-bills were issued at stop rates of 8.0 percent, 9.0 percent and 11.1 percent. Consequently, average T-bills rate rose to 8.4 percent by the end of Wednesday’s trading session. However, average T-bills rate declined 0.1 percent to 8.3 percent by Thursday, eventually settling at 8.1 percent, down 0.1 percent W-o-W.

HOPE MOSES-ASHIKE