The naira remained pressured last week in spite of the re-admittance of the suspended deposit money banks into the foreign exchange market, analysts have observed.
At the parallel market, the naira traded between N423/$ and N425/$ from Monday to Thursday before eventually closing the week at N424/$ on Friday. Activity level at the interbank market waned compared with the previous week as the naira/dollar spot rate traded at a tight band of N314.20/$ and N314.92/$ between Monday and midweek, before appreciating to N308/$ on Thursday. The Central Bank of Nigeria (CBN) intervened with dollar supply to the interbank market on most trading days of the week, as autonomous suppliers remain scarce.
In the futures market, despite the AUG 16 2017 Futures contract trading at N241/$, the 1-Year forwards rate hovered between N352/$ and N354.70/$ during the week (save for Tuesday when it appreciated to N314/$), implying a weaker expectation for future price of the naira.
Analysts at Afrinvest Securities Limited expect activity level at the interbank to stay soft on the back of the general holidays declared by the Federal Government. “We also opine that the apex bank may continue to intervene at the interbank in the interim in order to clear up rising FX demands,” Robert Omotunde, head, investment research, and his team of analysts at Afrinvest, said in a report.
According to the report, performance in the money market was fairly bullish during last week. Rates in the money market remained in the double-digit band and trended higher on all days of the week due to tighter system liquidity. On Monday, aggregate system liquidity opened at about N93 billion from N118.7 billion on Friday.
In line with recent trends, CBN mopped up a total of N107 billion in an Open Market Operation (OMO) auction on Monday, thus Open Buy Back (OBB) and Overnight (O/N) rates settled at 20.2 percent and 22.4 percent, respectively. In the absence of a major inflow into the system, OBB and O/N rose to 27.3 percent and 29.1 percent on Tuesday, further surging 5.8 percent and 6.4 percent to 33.2 percent and 35.5 percent on Wednesday, respectively.
A net effect of N293 billion OMO maturity and N139 billion worth of OMO mop up eased OBB and O/N to 17 percent and 18.7 percent, respectively, on Thursday. System liquidity further improved on Friday, due to previous day OMO maturity, thus OBB and O/N rates eased to 15.8 percent and 16.4 percent respectively.
Consequently, OBB and O/N rates appreciated W-o-W, up 2.8 percent and 1.1 percent, respectively.
Trading activities in the T-bills market opened the week on a bearish note given lower system liquidity. Average T-bills rates rose from 16.1 percent on Monday to 16.3 percent on Tuesday and sustained uptrend during the week, settling at 17.0 percent on Thursday as investors showed preference for OMO auction. Average rates declined 0.7 percent W-o-W to settle at 16.7 percent.
In the coming week, a T-bills maturity worth N96.6bn is expected to hit the system on Wednesday, however, we expect money market rates to remain within the double-digit levels barring any unexpected inflows from the system.
