Naira pressure to continue on declining oil price, external reserves

naira

The local currency, the naira, is expected to further depreciate this week as the threat of declining oil prices and steady depletion of the external reserves continue to weigh heavily on it, analysts have said.

The local currency has been 2.9 percent weaker this year, according to Bloomberg figures. Brent crude, the global benchmark, declined to $82.60 a barrel on October 16, the lowest in almost four years, from $115.71 on June 19. The 29 percent drop since June of the international price caught traders and forecasters by surprise.

External reserves dropped by 0.15 percent to $38.76 billion/barrel as at October 29, 2014 compared to $38.82 billion/barrel as at October 28, 2014.

Last week, the Central Bank of Nigeria (CBN) offered USD900 million but sold USD898.85 million (N139.98 billion) at the bi-weekly Retail Dutch Auction – a 10.10% drop from the USD999.85 million sold in the preceding week. Hence the USD/naira exchange rate steadied at N155.76/USD1 at the official window.

A report by Cowry Asset Management Limited showed that sales by two multinational oil companies, Total and Chevron (USD200 million and USD50 million, respectively), brought marginal relief to the local currency, as it appreciated 0.13% to N165.55/USD1 at the interbank market. At other alternative market segments, the local currency depreciated by 0.29% at the bureau de change segment, to N170.00/USD1 and by 0.29% to N171/USD1 at the parallel market segment.

Analysts at Afrinvest expect the money market to be awash with liquidity this week against the backdrop of AMCON bond maturity worth N866 billion. “Although we anticipate that the CBN will conduct series of OMO mop-ups to manage liquidity level, rates should ease further in the market”.

The report by Cowry Assets states that treasury bills worth N122.96 billion will be auctioned via the primary market this week, viz: 91-day bill worth N45.18 billion; 182-day bills worth N30.00billion; and 364-day bills worth N47.79 billion.

Also, treasury bills worth N326.024 billion consisting of 91-day bill worth N45.18 billion; 182-day bills worth N30.00 billion; 364-day bills worth N47.79 billion; and 133-day bills worth N203.10 billion will mature. “Total inflows are expected to exceed total outflows hence we expect NIBOR to moderate capacacross the tenor buckets”.

At the start of last week, liquidity level at the interbank money market was high, with an opening balance of N422.6 billion. This level of liquidity was delivered by Open Market Operation (OMO) and NTB maturities last week. The market stayed predominantly liquid during the week as opening balance increased progressively, peaking at N622.9 billion on Thursday. This was despite deposit money banks’ (DMBs) provisions for Retail Dutch Auction System (RDAS) on Monday and Thursday and series of CBN OMO mop-ups on Monday (N72.6 billion), Tuesday (N71.7 billion) and Wednesday (N50.1 billion). Hence, rates were broadly flat at the interbank market, with the call trading within 10.4%-10.7% while the OBB traded within 10.3% and 10.5%, according to Afrinvest weekly update.

Source : BusinessDay

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