News Column

Naira to Appreciate On Anticipated Forex Inflow

June 23, 2014

Obinna Chima

Financial market analysts have predicted that the naira will appreciate against the United States dollar this week on the back of anticipated inflow of the greenback from end of month dollar sales by multinational oil companies

Dollar demands at the Retail Dutch Auction System (RDAS) depressed last week as reflected in low subscription by bidders.

The Central Bank of Nigeria (CBN) offered a total of $700 million at its regulated bi-weekly forex market. While $400 million was offered by the regulator last Monday, it supplied a total of S$300 million to dealers last Wednesday.

A total of $387 million and $272.6 million were sold on Monday and Wednesday respectively. But the marginal rate during both auctions remained sticky at N155.73 to a dollar.

However, due to the decrease in demand for the greenback by importers, the naira firmed at interbank foreign exchange market.

Thus, the local unit appreciated marginally 20 kobo to close at N162.085 to a dollar, from N1623.65 to a dollar the preceding week. At the Bureau De Change (BDC) segment, the nation's currency closed flat at N167 to a dollar.

"While there is high expectations that the rebased national accounts, in addition to stable forex reserves and CBN's tight monetary stance, would help support the naira, it remains volatile due to structural imbalances between supply and demand," a report by Ecobank Nigeria stated.

Bond market According to a report by Afrinvest Securities Limited, activities in the bond market commenced the week flat across most maturities at the short end of the yield curve with mild increases at the longer end of the yield curve.

"On the second trading day however, the market experienced huge sell-offs on the back of profit taking and liquidity provisions ahead of Wednesday's treasury bills Primary market Auction.

"This pattern was sustained on Wednesday due to resurgence in demand from local institutional investors but reversed on Thursday," it explained.

Yields in the 9.2% FGN JUNE 2014 instrument with a TTM of less than one week lost 70 basis points to close at 6.6 per cent while other instruments declined by an average of 20 basis points.

The frequent treasury bills auctions tend to offset market dynamics as investors reassign portfolio's in either direction, the report added.

Interbank market The Interbank money market commenced last week with a credit balance of N265 billion and closed with a higher credit balance of N297 billion. As the week progressed, market activities increased with inflows of Open Market Operations (OMO) maturities worth N553.80 billion.

Treasury bills auction worth N168 billion was subsequently auctioned during the week mopping up liquidity significantly.

The Call and OBB rates both opened the week at 11.4 per cent, declining 81 basis points and 111 basis points to close at 10.6 per cent and 10.2 per cent respectively.

The 90-day, 120-day and 365-day rates depreciated the most by 32 basis points, 15 basis points and 24 basis points to close 10.9 per cent, 11 per cent and 12 per cent.

Afrinvest Securities anticipated that the market would be liquid this week on the account of inflows from OMO maturities.

However, a report by Ecobank Nigeria showed the liquidity position of the market was largely driven by monthly statutory (FAAC) liquidity injection, in addition to treasury bills auction.

The inter-bank secured lending (Open Buy Back) fell to 10.38 per cent to underscore current market liquidity status.

"The new Governor's forward guidance to a low interest rate environment showed a clear departure from the Sanusi era of a significantly tight policy stance.

"However, assuming no significant change to key indicators, the monetary policy rate will likely be held at 12 per cent through the third quarter of 2014 before any cuts are made due to reasonably strong liquidity growth, fiscal expansion prior to the February 2015 elections, and the potential risks to Nigeria arising from the normalisation in US monetary policy," the report added.

Furthermore, it stated that increased demand of Nigeria's 10-year instrument reflects increased investor confidence in the market. According to the analysts, another support to the country's assets has come from a low-inflation which was at eight per cent in May.

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Source: AllAfrica

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