Nigeria’s Local Currency Stabilises on Foreign Currency Inflow

The Nigeria’s local currency, Naira, was stable across the foreign exchange (FX) markets as foreign currency inflow slightly raised external reserves week on week as oil prices remained high.

This week, oil market sustained some level of volatility this as traffic resumes gradually on the Suez Canal and imposition of lockdown in some countries in Europe and Africa.

Consequently, Brent crude oil price declined marginally by 0.1% to $64.9 per barrel as the Organisation of Petroleum Exporting Countries and allies (OPEC+) decision to incrementally raise output in May and June.

Due to improve oil condition which appears to have generated foreign currency receipts, the nation’s external reserves expanded 0.5% week on week to $34.5 billion.

Analysts said at this level, the external reserves could cover less than five month imports bill, but oil outlook remains strong, thus reduce potential pressure.

In the foreign exchange (FX) market, naira remained flat in the parallel market and CBN spot rate to settle at ₦485.00/$1.00 and ₦379.00/$1.00 respectively.

Also, the exchange rate at the Investors and Exporters (I&E) Window appreciated by 70kobo week on week to ₦409.30/$1.00.

Afrinvest noted that activity level in I&E Window dipped 40.2% to $186.6 million from $312.0 million in the previous week.

Meanwhile, at the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts fell 20.6% or $1.3 billion to $5.1 billion.

The MAR 2022 instrument at contract price of ₦435.58 sustained its strong buying interest with an additional subscription of $193.9 million, which took total value to $204.5 million.

Also, the APRIL 2022 instrument at contract price of ₦437.88 saw a significant gain, as total value increased $78.0m to $80.5 million.

Afrinvest said in the coming week, the investment firm anticipates rates to remain in the same band across the segments of the FX market.

Bullish Activities

In the money market, activities were generally upbeat this week, despite a ₦180.8 billion open market operations (OMO) mop-up, Afrinvest hinted.

Recalled the CBN held a T-bill primary market auction on Wednesday, offering 91-day, 182-day and 364-day instruments, which closed at marginal rates of 2.0%, 3.5% and 8.0% respectively.

Analysts noted the short and mid tenor instruments were undersubscribed with bid-to-offer ratio settling at 0.9x and 0.7x respectively for the 91-day and 182-day instruments.

However, the 364-day instrument was 2.8x oversubscribed. Same day, the CBN held its OMO auction during the week, offering 97-day, 181-day and 342-day instruments at stop rates of 7.0%, 8.5% and 10.1% respectively.

All the tenors were oversubscribed at 3.4x, 2.4x and 3.5x respectively with a total amount of ₦100.0bn successfully allotted in line with the offered amount. The secondary market moved in tandem with liquidity levels at the start of the week as average yield declined by 4bps to 4.6%.

However, analysts explained that as liquidity levels increased through the week, they noticed yields declined to average 4.5%, down 0.1% week on week.

Despite the robust liquidity levels, money market rates – OBB and OVN rose significantly, settling 19.5% and 21.8% higher by the end of the week to 30.0% and 32.5% respectively.

“Given that system liquidity is expected to remain tempered as the CBN sustains OMO auctions with ₦34.0bn worth of instruments expected to mature on the 6th of April 2021, we expect rates to remain subdued next week”, Afrinvest said.

Sell-Offs Persist

In the domestic bonds market, performance was mixed during the week with the average yield on sovereign bonds increased on 2 of the 4-day trading week. Consequently, average yield rose 15bps w/w to 9.9% from 9.7% in the previous week.

The medium-term bonds recorded the most sell-offs as yields rose by 34bps and the long-term bonds yields inched higher by 7bps week on week.

On the other hand, the short-dated bonds recorded gains, with yields declining 3bps. In the coming week, we expect yields to rise further as activity level remains restrained.

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Nigeria’s Local Currency Stabilises on Foreign Currency Inflow