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Naira to weaken further as crude oil price falls to $39.83 per barrel

The pressure on the foreign exchange continued at the weekend as the dollar was trading at N453 on the black market on Saturday. This represents N0.33k loss over N452.67k traded on Friday.

The depreciation in the value of naira is as a result of dollar shortages following the drop in crude oil prices, according to analysts.

Nigeria’s currency is expected to weaken further as the price of brent crude fell to $39.83 per barrel on Saturday, September 12, from the improved level of $44.42 per barrel as at August 3, 2020.

“We expect naira to depreciate against the USD, especially at the I&E FXW (the autonomous window) given the recent declining crude oil prices,” said analysts at Cowry Asset Management Limited.

“Meanwhile, FG’s directive to the CBN to ban access to FX for food and fertilizer importers could conserve the external reserves, but increase demand pressure at the parallel and BDC markets,” the analysts said.

The CBN is expected to allocate another $10,000 to each of over 5,000 BDCs on Monday. The BDCs funded their account on Friday.

The local currency depreciated by N5 at the BDC segment as the dollar was sold at N460 on Friday as against N455 on Thursday.

On Thursday, the naira lost N9.50k to the dollar a day after the Central Bank of Nigeria (CBN) sold N50 million to $5,000 BDCs.

The regulator had sold $51.8 million to 5,180 BDCs across the country on Monday when it resumed dollar sales to BDC operators. It sold a total of $101.8 million to BDCs this week.

At the Investors and Exporters (I&E) forex window, the market opened with an indicative rate of N386.13k on Friday, which signalled appreciation of N0.44k when compared with N386.57k opened with on Thursday, data from FMDQ revealed.

The market closed with the dollar being quoted at N386.00k on Friday, representing a marginal appreciation of N0.17k when compared with N386.17k quoted on Thursday.

At money market next week, the Nigeria (T-bills) worth N528.71 billion will mature via the primary market which will outweigh T-bills worth N178.71 billion to be auctioned by CBN via the primary market; viz: 91-day bills worth N2.00 billion, 182-day bills worth N8.35 billion and 364-day bills worth N168.36 billion.

“We expect the stop rates of the issuances to decline amid demand pressure,” said analysts at Cowry Asset Management.

The CBN refinanced N128.10 billion T-bills which matured via the primary market at lower stop rates for all maturities amid demand pressure. Specifically, stop rates for 91-day, 182-day and 364-day bills rose to 1.10 percent (from 1.15 percent), 1.55 percent (from 1.80 percent) and 3.05 percent (from 3.34 percent), respectively.

Also, additional N265.00 billion worth of T-bills matured via Open Market Operation (OMO), which less N70.00 billion in OMO auctioned bills, resulted in a total net inflow of N195.00 billion.

Hence, given the financial system liquidity boost, Nigeria Inter-Bank Offered Rate (NIBOR) for 1 month, 3 months and 6 months dropped to 2.48 percent (from 2.64 percent), 2.67 percent (from 3.02 percent) and 2.93 percent (from 3.25 percent), respectively. However, NIBOR for Overnight funds rose to 15.95 percent (from 2.94 percent).

Meanwhile, Nigerian Interbank Treasury Bills True Yields (NITTY) fell for most maturities tracked in tandem with the stop rates: yields on 1 month, 6 months and 12 months maturities moderated to 1.01 percent (from 1.15 percent), 1.37 percent (from 2.25 percent) and 2.90 percent (from 3.12 percent), respectively. However, yield on 3 months maturity rose to 1.19 percent (from 1.15 percent).

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