The nation’s currency, the naira, is expected to remain stable this week as policy directions of the new government is believed to shape near term outlook of exchange rate, according to analysts at Afrinvest.
Meanwhile, analysts at Cowry Asset Management Limited expect to see increased demand for the greenback as importers strive to fund their orders.
Foreign exchange rate at the inter-bank remained steady at N199.10/US$1.00 all through last week (since April 27). This is on the back of the continued market intervention by the Central Bank of Nigeria (CBN) which has kept market rate fixed at N197.00/US$1.00.
At the BDC segment, however, rates stayed relatively unstable but within a tight range of N220.00/US$1.00 and N222.00/US$1.00. Earlier in the week, rates stayed at N222.00/US$1.00 but appreciated N2.00 on Wednesday to settle at N220.00/US$1.00 while on Thursday, exchange rate
in this segment pared the previous day’s gain with N1.00 and closed N221.00/US$1.00.
“Following MPC’s retention of key policy rates at the end of its meeting on Tuesday, although CRR on private and public sectors deposit was harmonised to 31.0%, we expect exchange rate to remain calm in the week ahead while we await policy directions of the new government to shape near term outlook of exchange rate”, Ayodeji Ebo, head, research and investment and his team of analysts said.
At the bond market, average yields increased one basis point to 14.6% a day after the central bank harmonised the Cash Reserve Requirement (CRR) on private (20%) and public (75%) sectors deposits to 31.0%. This was mainly due to the outcome of the MPC’s decision as some banks sought to raise cash for CRR debit to meet up with the new rule.
Last week, participants in the bond auction were perceived to have increased activity due to expectations of a reduction in CRR on public sector deposits which may have led to higher yields in subsequent sessions.
Although the bond market participants’ expectations of CRR reduction were not let down, the average yields in the bond market merely rose 0.2% from Tuesday to Friday.
Analysis of the sovereign yield curve shows the overall bearishness of the market as investors traded short at the short to medium end of the curve while average yields on the long end of the curve remained more or less flat.
“We expect yields on benchmark instruments to trade sideways this week as debates on whether the new CRR policy is aimed at further mopping up liquidity or increasing it are still on-going”, analyst at Afrinvest said in a report. Despite CRR debit from the system on Thursday, money market rates remained at the same level (10.2%- OBB and 10.7%-Overnight rates) even as Tbills worth N110.9 billion matured into the system.
At the close of last week, liquidity opening balance appreciated to N152.3 billion while money market rates dropped to 9.7% for the OBB and 10.0% for the Overnight rate. However, liquidity levels are expected to broadly be driven by the eventual impact of MPC’s decision on CRR this week.
Liquidity levels within the money market last week were relatively low compared to the previous weeks. Average liquidity opening balance opened at N133.4 billion relative to N221.0 billion in the previous week. Consequently, the average Open Buy-Back (OBB) and Overnightrates for the week were
41.7 % (OBB) and 44.3%(Overnight).
On Monday, liquidity opening balance was N121.7 billion with money market rates at 26.6% for the OBB and 29.0% for the overnight. On Tuesday, however, money market rates surged to 41.7% (OBB) and 44.3% (Overnight) as liquidity opening balance declined to N100.7 billion. Liquidity opening balance on Wednesday increased to N190.3 billion consequently, money market rates declined to 10.2% for the OBB and 10.7% for
the Overnight rate.
