Analysts anticipate pressure on naira as markets resume today

Analysts in the financial services sector expect resurgent demand and corresponding pressure on the local currency on resumption of normal economic activities after the two days holiday.

The naira appreciated week-on-week against the dollar as demand for the greenback tapered against the backdrop of decline in economic activities due to the Sallah festivities, analysts at Cowry Asset Management Limited, have said.

Consequently, the local currency appreciated week-on-week by 1.33 percent to N222/$ from N225/$ at the Bureau de Change segment, while it rose by 1.76 percent to N223/$ from N227/$ at the parallel (or ‘black’) market segment. The CBN clearing rate and interbank rate however remained steady at N197/$ and N199.10/$, amid a 50 percent supply decline to N30,000 in weekly auctions to BDCs as the official window closed for the two-day public holidays.

Meanwhile, quotes at over-the-counter forwards market indicate likely depreciation of the naira: 1 months, 3 months and 6 months forward contracts are expected to sell at N201.76/$ (from N201.62/$ in the preceding week), N208.98/$ (from N208.78/$) and N218.08/$ (from N217.81/$), respectively.

On the other hand, interbank rates are expected to moderate marginally on the impact of significant liquidity boost from previous week’s Federation Accounts Allocation Committee (FAAC) disbursement and injections from the 6 percent reduction in Cash Reserve Ratio.

The Nigerian Interbank Offered Rates last week remained resolute as the disbursed N442 billion FAAC was yet to hit the system at the close of the business week. August FAAC disbursement declined by 13.6 percent from N511.7 billion distributed for the month of July. Also in the week under review, treasury bills worth N100.89 billion were auctioned via the primary market, viz: 91-day bills worth N31.19 billion; 182-day bills worth N10.61 billion; and 364-day bills worth N59.08 billion, while additional N108.83 billion were auctioned via open market operations.

However, this was partly offset by matured treasury bills worth N100.89 billion. Week-on-week basis, interbank interest rates moved in mixed directions. Overnight funds rate and 1 month NIBOR mellowed to 14.0 percent (from 14.67%) and 15.76 percent (from 15.90%), respectively.

Nevertheless, NIBOR for 3 months, and 6 months increased to 16.91 percent (from 16.82%), and 18.06 percent (from 17.71%), respectively. This week, treasury bills worth N197.97 billion will be auctioned via OMO. Conversely, N87.9 billion worth of treasury bills will mature via OMO repayments.

At the fixed income market, analysts expect further rise in local Over-The-Counter (OTC) bond prices and decline in yields on expected liquidity boost. “We also expect stabilisation in the prices of FGN Eurobonds as current yield make them attractive to bargain hunters,” analysts at Cowry Asset said.

Last week, Federal Government bond prices appreciated and corresponding yields fell on continued bargain hunting activities at the over the counter market as risk adjusted returns remained attractive. The 10-year, 16.39 percent FGN JAN 2022 bond gained N2.0 (yield moderated to 15.51%); the 7-year, 16 percent FGN JUN 2019 debt climbed by N1.66 (yield decreased to 14.69%); the 5-year 15.10 percent FGN APR 2017 firmed by N0.90 (yield declined to 14.66%), while the 3-year, 13.05 percent FGN AUG 2016 bond instrument upped by N0.34 (yield fell to 14.04%).

The 20-year, 10 percent FGN JUL 2030 bond remained steady at 15.51 percent. At the international bond market, FGN Eurobonds depreciated on sell-offs amid decline in external reserves – week-on-week, the reserves declined by 0.5 percent to N30.54 billion (from N30.69bn).

Week-on-week, the 10-year, 6.75 percent FGN JAN 2021 paper fell by $1.77 (yield rose to 7.11%) while the 5-year, 5.13 percent FGN JUL 2018 bond declined by $0.81 (yield increased to 5.47%). Also, the 10-year, 6.38 percent FGN JUL 2023 bond lost $2.32 (yield jumped to 7.54%).