Naira depreciates after CBN’s rate hold

Nigeria’s currency on Tuesday depreciated by 0.18 percent to close at N417.00 per dollar, compared to the last close of N416.25 on Monday at the Investors and Exporters (I&E) forex window.

This came a day after the Central Bank of Nigeria (CBN) kept its benchmark interest rate known as the Monetary Policy Rate (MPR) at 11.5 percent.

Data from the FMDQ show that most foreign exchange participants maintained bids between N406.00 (low) and N444.00 (high) per dollar.

The CBN did not consider loosening because it felt that loosening would trigger foreign exchange demand pressure, as the excess liquidity would exert demand pressure on the FX market and trigger a naira depreciation which would also fuel inflation.

Pressure on the foreign exchange continued at the alternative market as the dollar is currently being quoted at N584 as of Tuesday.

“Should shortages continue to pressure parallel market FX rates, this raises the risk of faster feedthrough into price pressures in the wider economy. There are no easy policy responses, easy and relatively painless to implement, that can help rein in price pressures,” Razia Khan, Managing Director, Chief Economist, Africa and Middle East Global Research, Standard Chartered Bank, said.

At the money market, on Tuesday, the Overnight (O/N) rate increased by 2.00 percent to close at 11.67 percent as against the last close of 9.67 percent on Monday.

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The Open Repo (OPR) rate also increased by 2.00 percent to close at 11.00 percent compared to 9.00 percent on the previous day.

A report by the FSDH Research noted that the Nigerian Treasury Bills (NT-Bills) secondary market closed on a mildly positive note with average yield across the curve decreasing by 6 bps at 3.23 percent from 3.29 percent on the previous day.

Average yield across the long-term maturities compressed by 23 bps, while the average yield across the medium-term maturities expanded by 17 bps. However, the average yield across the short-term maturities remained unchanged. NTB 10-Nov-22 (-65 bps) maturity bills witnessed maximum buying interest, while the yields on 6 bills remained unchanged.

In the Open Market Operation (OMO) bills market, the average yield across the curve closed flat at 3.42 percent. Average yields across short-term, medium-term, and long-term maturities remained unchanged at 3.02 percent, 3.28 percent, and 3.69 percent, respectively.

Analysts at Parthian Partners, Africa’s premier inter-dealer broker, said the bond market on Tuesday had a mildly bearish session, with activity skewed to the long end of the curve. Players cherry picked few attractive offers available, leading to a handful of trades being executed. The 2036s and 2042s were the most active on the day.