Naira ends week with marginal appreciation after CBN sold $100m

Nigeria’s currency ended the week with a marginal appreciation of 0.23 basis points (bsp) against the dollar at the Investors and Exporters (I&E) forex window after the Central Bank of Nigeria (CBN) sold a total of $100 million at the Secondary Market Intervention Sales (SMIS) Wholesale Window on Wednesday.

Naira closed at N410.00k at the I&E window, which was 1.32 percent stronger than N404.67k percent closed in the previous week.

Week to date, Naira depreciated marginally in the same market by 0.08 percent as the dollar opened the week at N409.67k on Monday and closed at N410.00k on Friday, data compiled by BusinessDay from the FMDQ indicated.

Naira weakened at the black market by 1.06 percent Week-on-Week to N478 per dollar compared to N473 closed last week.

At the Bureau De Change (BDC) segment, Naira opened at N475 per dollar on Monday and closed at N476/$ on Friday, representing 0.21 percent depreciation.

About 5,500 BDCs received $110 million disbursements from the CBN last week. The CBN sells $10,000 twice weekly to BDCs.

Aminu Gwadabe, President Association of Bureau De Change Operators of Nigeria (ABCON) has refuted the reports that the CBN did not sell dollars to BDCs within the week saying it was not true.

“The story is the handiwork of speculators to cause unnecessary panic in the market,” Gwadabe told BusinessDay.

Foreign exchange liquidity improved as the daily FX turnover rose by 135.41 percent Week-on-Week to $66.41 million on Friday from $28.21 million recorded on Monday.

In the oil market, Brent crude oil price rose 2.0% w/w to $63.68bbl on the back of depleted oil reserves. Meanwhile, external reserves declined 0.9% w/w to $35.5bn as of February 17, 2021.

Responding to a question on oil prices going up, external reserves declining and FX remains pressured, Gwadabe said it was the result and consequences of the covid 19 pandemic but that the CBN is proactive in mitigating the problem by shifting towards a more float exchange rate and diversifying the foreign inflows sources as seen in recently measures in Diaspora remittances.

“However the CBN still need to have a more deepen strategy to ensure different sector in the financial industry is holistically integrated to ensure the success of their strategies,” Gwadabe told BusinessDay on Saturday.

International Monetary Fund (IMF) directors had advised the Central Bank of Nigeria (CBN) to unify exchange rates.

The IMF has been mounting pressure on Nigeria to devalue the naira especially when the Fund believes that the domestic currency is overvalued citing the wide premium between the I&E window and the parallel market rates and the huge unmet forex demand.

At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts of the Naira settled at $7.5bn, up to $199.2m (+2.7%) from $7.3bn in the prior week following new subscription in the SEP 2022, DEC 2022 and JAN 2026 instruments. The JUN 2022 instrument (contract price: N449.95) received the most buying interest in the week with an additional subscription of $22.7m which took total value to $25.2m. On the other hand, the JUL 2021 instrument (contract price: N426.58) was the least subscribed, with an additional subscription of $0.5m for a total value of $206.6m.

“Next week, we expect rates to continue to trade within a tight band across different segments of the market,” analysts at Afrinvest Securities Limited said.
At the money market, the interbank rates – Open Buy-back (OBB) and Overnight (OVN) – opened the week lower at 4.0% and 4.25% respectively from the close of 4.5% and 4.75% last week despite system liquidity falling to N377.4bn. By the end of the week, the rates closed at 20.0% and 20.5% despite an increase in system liquidity to N1.1tn, according to a report by Afrinvest.

On Thursday, following the inflow from Open Market Operation (OMO) maturities worth N260.2bn, the CBN conducted an OMO auction worth N180.0bn to mop-up liquidity in the system. Demand at the auction was robust as the 110-day (Offer: N20.0bn; Subscription: N52.68bn; Sale: N20.0bn), 180-day (Offer: N20.0bn; Subscription: N54.40bn; Sale: N20.0bn) and 362-day (Offer: N140.0bn;

Subscription: N350.73bn; Sale: N140.0bn) instruments were oversubscribed by 2.6x, 2.7x and 2.5x at marginal rates of 7.0%, 8.5% and 10.1% respectively, similar to the previous auction.

In the secondary market, the performance was muted as average yields across tenors closed flat at 1.6%. The 91-day, 182-day and 364-day instruments traded at yields of 0.76%, 1.96% and 2.07%, similar to last week levels.

“In the coming week, we anticipate inflows from maturing OMO instruments worth N476.4bn to shape the movement of rates. However, we expect CBN to keep rates and system liquidity in check through regular auctions,” Afrinvest analysts said.

The selling pressure in the Bonds market eased this week as the yield curve expanded by 40bps to 9.4% from 9.0% WoW, compared to a 100bps surge in yields last week. Across the curve, the long (+55bps), the intermediate (+28bps), and short (+27bps) segments all closed bearish. During the week, the DMO sold NGN33.6bn, NGN28.9bn, and NGN18.0bn across the FGN MAR 2027, FGN MAR 2035, and FGN JUL 2045 instruments at 10.25%, 11.25% and 11.80%, according to a report by Greenwich Merchant Bank Limited.

Analysts at Greenwich noted that marginal rates cleared above market rate and were higher than the previous auction (7.98%, 8.74% and 8.95% for the three tenors accordingly). While marginal rates rose, the DMO only allotted NGN80.5bn out of the NGN150.0bn offer is brought to the market, while non-competitive allotment stood at a cumulative of NGN48.0bn.

“Next week we anticipate that investors will remain bearish, but momentum should be subdued,” the analysts said.