Naira pressure to heighten on CBN’s window closure against BDCs

The persistent foreign exchange (FX) pressure is expected to heighten this week on the back of closure of the Central Bank of Nigeria’s (CBN) window against the Bureau De Change (BDC) operators.

The naira weakened the most relative to the dollar amid news of CBN suspension of dollar sales to BDCs last week.

A report by Cowry Asset Management Limited revealed that the naira depreciated (w-o-w) by a steep 9.26 percent (or N15) against the greenback to close at N295/$ at the BDC segment. Similarly, the local currency also weakened at the parallel (or black) market by 8 percent (or N12) to N297/$.

Week-on-week, external reserves declined by 0.86 percent ($1.25bn) to $28.7 billion. The CBN clearing rate and interbank rate remained at N197/$ and N199.10/$, respectively. The CBN governor at a media conference announced that the apex bank would discontinue direct sales of FX to operators of BDCs, directing them to seek funds from autonomous sources under the supervision of the CBN.

Reasons given for this policy shift include – “rent seeking activities by operators of the BDCs, potential financing of illegal activities and gradual dollarisation of the Nigerian economy.”

Meanwhile, the CBN directed that banks could start receiving foreign currency deposits.

At the fixed income market, analysts expect further decline in bond prices on the market as investors switch to the primary market.

Last week, Federal Government bond prices at the over-the-counter market mostly fell amid profit taking activities. On a weekly basis, the 20-year, 10 percent FGN JUL 2030 bond fell by N6.99 (yield rose to 12.60%); the 10-year, 16.39 percent FGN JAN 2022 note lost N5.60 (yield increased to 12.35%); the 7-year, 16 percent FGN JUN 2019 paper slid by N1.46 (yield rose to 11.56%), while the 3-year, 13.05 percent FGN AUG 2016 bond lost N0.24 (yield rose to 6.35%).

However, the 5-year, 15.10 percent FGN APR 2017 debt climbed by N0.15 (yield dipped to 9.63%). Similarly, at the international bond market, FGN Eurobonds declined across board as bears prevailed in market transactions this week amid a 10.23 percent decline in crude-oil prices on the international market, according to OPEC in the same time frame.

The 10-year, 6.75 percent FGN JAN 2021 paper shed $1.25 (yield rose to 8.58%), while the 5-year, 5.13 percent FGN JUL 2018 bond lost $0.69 (yield climbed to 7.22%). Also, the 10-year, 6.38 percent FGN JUL 2023 bond fell by $0.76 (yield rose to 8.69%).

This week, FGN bonds worth N80 billion will be auctioned viz: 5-year, 15.54 percent FGN FEB 2020 bond (5-year re-opening) worth N40 billion, and the10-year, FGN JAN 2026 bond worth N40 billion (10 – year new issue).

Also, an additional N10.838 billion of the FGN JAN 2026 bond will be allocated on a non-competitive basis.