Naira is expected to maintain its stability this week as the financial markets continue to adjust to the Central Bank of Nigeria (CBN) foreign exchange (FX) policy stance with sustained dollar supply intervention at the Bureau de Change (BDC) segment, analysts at Afrinvest Securities Limited and Cowry Asset Management Limited have said.
The naira remained stable at N199.10/$ at the inter-bank market last week while the apex bank continued to intervene at N197/$. At the parallel market segment, FX rate appreciated 1.8 percent from N221/$ last Friday to N217/$1 on Monday.
This was due to increase in supply of the dollar from the BDC segment as the CBN continued its regular sale of the greenback to BDCs.
The parallel market rate remains the most volatile compared with inter-bank market and CBN’s intervention rates. As the Nigerian financial system continues to adjust to the apex bank’s policy stance on exchange rate, parallel market rate traded within the bands of N212/$ and N221/$ during the week.
With the CBN’s persistent efforts at defending the currency via the use of demand management policies in order to conserve the external reserves, the local unit has appreciated 5.8 percent MtD to N212/$ in the parallel market.
However, the spread between the inter-bank market and the parallel market rates remained wide due to continued intervention by the CBN.
“Given the above, our outlook on the foreign exchange market next week is a continuation of what transpired this week, hence exchange rates are expected to trade at current levels with marginal swings in the parallel market,” Ayodeji Ebo, head, investment research, and his team of analysts at Afrinvest, said in a report.
According to the report, the relative dearth in financial market liquidity caused money market rates to trend relatively high on all trading days of last week. With liquidity opening balance of N111.0 billion on Monday, Open Buy Back (OBB) and Overnight (O/N) rates settled at 18.3 percent and 21.3 percent after trade.
On Tuesday, however, money market rates trended in opposite direction as OBB rose 1.7 percent to 20 percent, while overnight rate declined 0.8 percent to 20.5 percent; this was on the back of higher intraday scramble for liquidity by banks after opening at N94.4 billion on same day.
Consequent on the continued withdrawals of funds by the Nigerian National Petroleum Corporation (NNPC) on Wednesday, money market rates closed higher at 25 percent (OBB) and 28.4 percent (Overnight).
On Thursday, however, there was a slight decline in money market rates to 24.2 percent and 26.2 percent for the OBB and Overnight rates, respectively. This was consequent on the Open Market Operation (OMO) maturity worth N62.4 billion that hit the system on the same day.
On Friday, rates returned to their high levels after the CBN debit of N62.4 billion from the OMO auction of the previous day drew liquidity from the system with no relevant credit inflows, thus bringing Standing Lending Facility (SLF) to N70.4 billion.
Hence, OBB and Overnight rates closed last week at 38.7 percent and 49.3 percent accordingly. Similarly, occasioned by low liquidity levels, average yields rose 0.3 percent W-o-W from 15.3 percent to 15.6 percent in the Treasury Bills market.
“In the coming week, we expect rates to trend at these same levels as implementation of the Treasury Single Account (TSA) hits harder on the financial system,” the analysts said.