Naira to maintain stability this week as external reserves improve

The nation’s currency, the naira, is expected to maintain its stability at the foreign exchange market following recent improvement in external reserves, analysts have said.

External reserves improved by 0.3 percent to US$29.7 billion as at May 7, 2015 compared with US$29.5 billion as at April 30, 2015.

Analysts at Afrinvest believe this is linkable to the recent rally in the global prices of oil which have increased 13.5 percent in the last four weeks.
“We expect the naira to continue to trade within the current level at the inter-bank segment of the forex market in the coming week”, Ayodeji Ebo, head, investment research, Afrinvest, and his team said in a report.

“This week, we expect the naira to witness further stability particularly with the recent accretion to the external reserve”, analysts at Cowry Asset Management Limited said.

According to the report, the local unit held steady against the greenback yet again last week, hence the naira closed flat at N199.10/US$1.00 at the interbank market as the local currency traded within a tight range throughout the week. Similarly, the CBN’s clearing rate steadied at N197.00/US$1.00 for the week.

In the BDC segment of the forex market on Monday, the value of the naira appreciated 2.4 percent to N217.56/US$1.00 from the previous week’s close of N223.10/US$1.00. However, the currency declined 2.0 percent to N222.00/US$1.00 the next day on the back of some level of scarcity in the parallel market. On Wednesday, the domestic currency appreciated to N221.50/US$1.00 on weaker demand for the greenback compared to the previous day, strengthening marginally by 1 kobo to N222.50/US$1.00 the next day.

At the money market, inter-bank rates are expected to rise this week following a net outflow as the impact of forex cover and bond auctions outweighs inflows from maturing bills, according a report by Cowry Asset.

The analysts also expect moderation in volume of activities at the OTC bond market as investors are expected to switch to the primary segments for likely higher yield.

Liquidity levels within money market last week were relatively high, hence, average money market rates for the week settled at 8.5% for Open Buy Back (OBB) and 9.1% for Overnight rate similar to the rates in the previous week. Liquidity level opened for the week at N719.9 billion with OBB and Overnight rates at 8.8 percent and 9.5 percent, respectively.