The nation’s currency, the naira, is expected to strengthen this week on the back of likely foreign portfolio investments in local fixed income securities such as treasury bills and bonds with the possibility of increasing dollar supply, according to analysts at Cowry Asset Management Limited.
The development is as a result of continued tight monetary stance of the Central Bank of Nigeria (CBN) which has maintained high yields in fixed income.
Also the naira defence stance of the CBN encouraged by recent positive oil price movements is expected to bring stability in the foreign exchange market despite slight dip in forex reserves by 0.005 percent to $37.11 billion as at April 16, 2014 as against $37.13 billion as at April 15, 2014.
The official naira/USD exchange rate improved amid sustained lower demand for dollar. The naira appreciated against the greenback by 0.01 percent (or N0.01) to N155.73/USD after the CBN offered USD800 million but sold USD626.69 at its bi-weekly Retail Dutch Auction. The local currency also appreciated at the bureau de change by 0.12% (or N0.20) to N170.00/USD while it closed steady at the parallel (‘black’) market at N171.00/USD. However, the naira depreciated at the inter-bank forex market by 0.73 percent (or N1.17) to N162.12/USD despite USD10 million sales by Addax Petroleum to dealing lenders.
On the other hand, inter-bank rates are expected to fall this week following Federation Account Allocation Committee (FAAC) disbursements of N641.38 billion, which are expected to be fully credited during the week and maturing bills worth N190.62 billion, viz 91-day bills worth N34.89 billion; 142-day bills worth N20.00 billion; 153-day bills worth N20.00 billion; 182-day bills worth N30 billion; and 364-day bills worth N85.73 billion.
However, the CBN will this week, auction treasury bills worth N150.62 billion, viz 91-day bills worth N34.89 billion; 182-day bills worth N30 billion; and 364-day bills worth N85.73 billion.
The previous week shows Nigerian Inter-Bank Offered Rates (NIBOR) increased marginally for all tenor buckets following withdrawals by lenders to fund forex demand by end-users. NIBOR for call, 7 days, 30 days and 60 days rates rose to 10.87% (from 10.83%), 11.21% (from 11.17%), 11.46% (from 11.42%) and 12.12% (from 12.08%), respectively. Interest rates rose in spite of FAAC disbursements of N641.38 billion, which started to trickle into the system towards the end of the week.
For bond market, analysts anticipate a moderation in marginal rates for the debt re-openings on the back of likely favourable investor sentiment especially against the backdrop of recently rebased GDP as debt to GDP ratio decreased significantly.
A report by Cowry Asset revealed that in the just concluded week, bond prices depreciated (and yields increased) for most maturities tracked as sell pressure dominated transactions occasioned by profit taking. The 10-year, 16.39% FGN January 2022 debt depreciated by N1.50 (yield increased to 13.42% from 13.14%); the 7-year, 16.00% FGN June 2019 bond weakened by N0.70 (yield climbed to 13.31% from 13.14%); while the 3-year, 13.05% FGN August 2016 paper softened by N0.40 (yield increased to 13.28% from 13.08%). However, yield on the benchmark 20-year, 10.00% FGN July 2030 bond closed steady at 13.47%.
