As the rescheduled general elections draw nearer, analysts foresee volatility in the naira this week. According to Afrinvest analysts, volatility in the local currency was at its barest minimum last week as the naira remained relatively stable at the interbank market. Throughout last week, the local currency traded at a range of N199.10/US$1 to N199.15/US$1 at the inter-bank and was sold at N197/US$1 from the Central Bank of Nigeria (CBN). Though deposit money banks (DMBs) have to scramble to meet customers’ demands, the relative calm that has been noticed in the naira remained on the back of CBN’s decision to close the RDAS window while intervening to meet excess demand when required.
The naira closed at N199.10/US$ relative to the greenback on Wednesday. This was due to dollar sales by the NNPC. This thereby caused a 3 kobo appreciation in the local currency compared to the previous day’s close of N199.13/US$. On Thursday, the rate depreciated to its week’s low of N199.15/US$1. At the close of the week on Friday, the local unit settled at N199.10/US$1 at the interbank which is the same with the previous week’s close. Nevertheless, dollar sales by the NNPC and CBN failed to meet up with customers’ demand. The external reserves declined further last week closing at $30.5 billion compared to $30.8 at the end of previous week.
“Akin to our prediction, the naira was relatively stable this (last) week. However, we expect some level of volatility in the naira in coming weeks as the general elections approach”, analysts at Afrinvest said in a report. Analysts at Cowry Asset Management Limited expect the forex market to remain relatively stable as the CBN maintains a tight grip on market activities. They also expect yields on auctioned treasury bills to increase due to increased macroeconomic risks as well as increase in Nigeria Inter-Bank Offered Rates (NIBOR) in the absence of any major inflow.
However, this week treasury bills worth N167.20 billion will be auctioned via the primary market, viz: 90-day bills worth N33.87;180 bills worth N50.28 billion;364 days bills worth N83.05 billion while treasury bills of equivalent values and tenors will mature via the primary market. Last week,treasury bills worth N240.20 billion matured via open market operations – 160-day bills worth N46.23; 161-day bills worth N153.25 billion; 164- day bills worth N40.72 billion.
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Despite inflows, Nigerian Interbank Offered Rates increased across all tenor buckets – the over- night, 1 month, 3-month and 6-month buckets increased to 44.33% (from 11.79%), 16.09% (from 15.43%), 17.43% (from 16.82%) and 18.29% (from 17.71%). Pressure on system liquidity was partly due to purchase of foreign exchange as well as fixed income instruments.
