Respite for naira as MPC meets today to curb forex demand

The naira, particularly at the official market, is expected to stabilise this week as the Monetary Policy Committee (MPC) meets today and tomorrow to deploy more tools to curb demand for foreign exchange in response to increased pressure on the external reserves, analysts at Cowry Asset Management have said.

The external reserves continued to deplete as it has fallen to $38.1 billion as at March 20, 2014 from $38.2 billion on March 19, 2014.

Last week, the naira traded steady at N155.74/USD at the official market after central bank offered USD800.00 million but sold USD792.41 million to end users at its bi-weekly Retail Dutch Auction.

Similarly, the Naira/USD exchange rate closed flat at the parallel market at N172.00/USD. However, the local currency strengthened at inter-bank foreign exchange market by 0.03% (or N0.05) to N164.88/USD while appreciating by 0.29% (or N0.50) to N170.50/USD at the parallel (or ‘black’) market.

Also this week, inter-bank rates are expected to rise following expected further tightening of liquidity by the MPC.

The CBN will auction bills worth N55.32 billion on Wednesday, March 26, 2014. The bills will consist of 91-day bills worth N21.54 billion and 182-day bills worth N33.78 billion.

However, the outflows will be more than offset by maturing treasury bills worth N266.81 consisting of 91-day bills worth N21.54 billion; 105-day bills worth N11.29 billion; 111-day bills worth N40.59 billion; 114-day bills worth N6.02 billion; 126-day bills worth N53.47 billion; 175-day bills worth N100.12 billion; and 182-day bills worth N33.78 billion.

In line with the analysts’ expectations, inter-bank interest rates plunged for all placement tenors amid boost in financial system liquidity.

Last week, FAAC disbursements worth N641.29 billion as well as matured treasury bills worth N257.11 billion, viz: 91-day bills worth N50.28 billion; 141-day bills worth N42.93 billion; 150-day bills worth N66.91 billion; 182-day bills worth N33.27 billion; and 364-day bills worth N63.73 billion hit the financial system.

However, the Central Bank of Nigeria (CBN) sold treasury bills worth N166.59 billion. The bills consisted of 91-day bills worth N33.27 billion (marginal rate (MR) rose to 11.95% from 11.89%); 364-day bills worth N83.05 billion (MR rose to 13.59% from 13.51%). Conversely, 182-day bills worth N50.28 billion (MR fell to13.25% from 13.36%). Also, CBN sold 140-day bills worth N50.00 billion and 146-day bills worth N50.00 billion via open market operations. The inflows exceeded the outflows; hence, NIBOR for call, 30 days, 60 days and 90 days declined to 10.75% (from 17.75%), 11.37% (from 18.29%), 11.71% (from 18.54%) and 11.96% (from 18.79%).

According to a report by Cowry Asset, this week there is expectation of sell pressure at the over-the-counter bond market and resultant price appreciation (and decline in yields) due to anticipated liquidity tightening.