Naira outlook brightens on rising foreign reserve

Pressure on the naira is expected to ease this week following a noticeable accretion in foreign reserves by 4.88 percent to $26.22 billion as of January 5, from $25.0 billion in December 15, 2016.

In addition to this, the expected dollar supply to Bureau De Changes (BDCs) by the International Money Transfer Operators (IMTOs) will also help shore up the naira.

The nation’s currency has remained stable, closing at N305/$ since last two week at the interbank spot market, according to data from the FMDQ.
Naira depreciated at both the BDC and parallel market segments by 0.62 percent and 0.61 percent to N485/$ and N493/$, respectively.

The 1-month, 3-month, 6-month and 12-month forward contracts were stable at N305.25, N320.18/$, N330.537/$, N346.07/$ and N378/$, respectively.

However, spot rate appreciated by 0.08 percent to N305/$ as there was $7.5 million intervention sales by CBN to banks during the week.

“We expect stability of the naira/USD exchange rate as the increasing reserve spur confidence on the ability of the Central Bank of Nigeria (CBN) to intervene more aggressively in the official market window,” analysts at Cowry Asset Management Limited said.

Up to May 31, the exchange rate was pegged to $/N199, reinforcing CBN’s commitment to a managed FX rate. It depreciated in the parallel market, and fell to a historic low of N490/$, further widening the gap between the parallel and interbank rates (which closed at N305.5/$).

The CBN liberalised the exchange rate with the introduction of flexible exchange rate regime in June. CBN sold about $1.56 billion in forward auction via Special Secondary Market Intervention Retail Sales (SMIS).