Naira remains stable despite declining external reserves

... South Africa Eurobond instrument falls

The Central Bank of Nigeria (CBN) sustained its interventions in the )FX) market this week, offering a total of $210.0 million at the various segments to maintain liquidity and stability in the value of the naira.

For the corporate Eurobonds instruments tracked, the bullish momentum remained strong as all instruments gained W-o-W, save the SOUTH AFRICAN SIBANYE GOLD LTD 2023 instrument that recorded a 6bps rise in yield.

The apex bank sold $100.0 million to the Secondary Market Intervention Sales (SMIS) Wholesale window while it offered $55.0 million each to both the Small and Medium scale Enterprises (SMEs) and the Retail (Invisibles) segments. However, the external reserves continued its recent decline, down 1.2 per cent ($544.4 million) to $43.2 billion from $43.7 billion of the previous  week. The prospect for accretion in reserves remains weak as oil prices slightly moderated to $60.01/bbl. from $61.04/bbl. last week.

The CBN spot rate opened the week at N306.95/$ but closed the week at N306.90/$, appreciating 10kobo W-o-W from N307.00/$last week Friday. At the parallel market, the exchange rate traded flat all week to close at N360.00/$.

At the Investors’ & Exporters’ (I&E) FX Window, the NAFEX rate opened last week week at N362.88/$ and closed at N362.08/$ on Friday, appreciating 85 kobo W-o-W from N362.93/$. Activity level in the I&E Window fell 33.4 per cent to $1.1 billion from $1.6 billion recorded in the previous week.

At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts of the Naira settled at US$11.1bn, up US$112.0m (1.0 per cent) from US$11.0bn in the prior week. The AUG 2020 instrument (contract price: N365.32) received the most buying interest in the week with additional subscription of US$19.5m which took total value to $174.3 million. On the other hand, the NOV 2019 instrument (contract price: N363.97) was the least subscribed, with an additional subscription of $4.0 million for a total value of $1.5 billion. In the coming week, we expect the exchange rate in the various FX segments to be stable at current levels as the CBN continues to support the naira through its weekly interventions.

Meanwhile, bearish momentum in the secondary treasury bills market was witnessed in the last week.

As system liquidity remained at a robust level of N394.9 billion at the start of the week, OBB and OVN opened at 8.9 per cent and 9.9 per cent respectively, slightly lower than the previous week’s close of 9.3 per cent and 10.5 per cent.

However, as the Open Market Operation OMO maturities worth N204.1 billion boosted system liquidity on last Thursday, the rates trended even lower to 4.2 per cent and 5.1 per cent respectively. By the close of the week, Open Buy Back (OBB) and Overnight (OVN) rate settled at 3.2 per cent and 3.9 per cent in that order.

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