At the Foreign Exchange Market (forex), the naira was stable across all segments.
Despite the decline in oil prices at the close of the week as Brent Crude Oil price lost six basis points (bps) Week-on-Week (W-o-W) (to close at $68.02), there was an improvement in foreign reserves, although a marginal increase, as CBN continues to support the naira. The recent momentum of accretion in reserves was sustained, with the gross level reported at $45.1 billion as at (05/23/2019) – up $45.3 million W-o-W from $45.0 billion. As a result, the naira remained stable during the week.
The CBN’s spot rate opened the week at N306.95/$, appreciated by five kobo to N306.90/$ on Monday and maintained this rate till the end of the week. At the parallel market, rate opened the week at N361.00/$ and was maintained till weekend. Meanwhile, at the Investors and Exporters’ (I&E) Window, although the NAFEX opened the week at N360.07/US$1.00, it depreciated 32kobo to N360.39/$ by weekend. Activity level in the I&E FX window was weaker as turnover decreased by 46.7 per cent to $850.7 million from $1.6 billion traded in the previous week.
In the FMDQ OTC FX futures market, total value of open contracts rose by $161.1 million to $9.0 billion relative to $8.8 billion posted last Friday. This performance was buoyed by increased buying interest in the April 2020 instrument, which was up 74.7 per cent to $350.1 million from $200.4 million in the prior week. In the coming week, we expect rates to trade within similar levels across the forex market segments.
Money Market: OMO and FAAC Inflows Boost System Liquidity; T-Bills Market Sustains Bullish Momentum
During the week, money market rates responded largely to movement in liquidity dynamics as average Open Buy Back (OBB) and Over Night Rates (OVN) rates rose 6.8 per cent and 6.7 per cent W-o-W respectively. From the close of 4.3 per cent and 5.3 per cent in the previous Friday, OBB (5.0 per cent) and OVN (5.7 per cent) opened the week higher as system liquidity settled at N261.8bn from N491.7 billion.
On Tuesday and Wednesday, liquidity levels rose to N265.6 billion and N266.1 billion with OBB and OVN moderating to 4.6 per cent and 5.3 per cent respectively. By mid-week, however, the disbursement of a total of N215.3 billion to the States and LGAs by the Federal Account Allocation Committee (FAAC), coupled with OMO maturity of N106.9 billion, improved system liquidity and prompted the CBN to conduct OMO auctions worth N360.7 billion (91-Day: N16.18 billion; 182-Day: N47.56 billion; 357-Day: N296.95 billion) on Thursday. The 91-day, 182-day and 357-day instruments were issued at marginal rates of 11.4 per cent, 11.7 per cent and 12.5 per cent respectively while all instruments were 1.03x, 1.25x and 1.001x oversubscribed.
Consequently, OBB and OVN rates inched higher to close at 11.1 per cent and 12.0 per cent respectively.
Next week Thursday, OMO maturity of N133.6 billion is expected to hit the system while total T-bills maturities worth N67.4bn are expected. We anticipate OBB and OVN to hover around single digit in the coming week as we expect the roll-over of maturing T-bills as well as possible OMO issuances to have a muted impact on liquidity.
In the T-bills market, the decision by the MPC last week to retain all policy parameters, coupled with the OMO auction which showed lower marginal rates and tighter spreads in range of bids, impacted on yields across maturities. Average T-bills rate dropped 78bps W-o-W to settle at 11.4 per cent from the previous close of 12.2 per cent. The 91-day Date to Maturity (DTM) traded bearish as average rate rose 1.2 per cent to close at 11.4 per cent. However, the 182-day and 364-day benchmarks had a bullish outing as yields moderated by 1.0 per cent and 2.5 per cent to close the week at 11.7 per cent and 11.2 per cent respectively. We expect the T-bills market to remain calm in the near term as investor appetite shifts toward better high yielding long duration bonds.
