Naira to maintain stability as CBN’s FX policies remain efficient

The stability experienced last week in the foreign exchange market, response to Central Bank of Nigeria’s (CBN) forex measures, is expected to continue this week, analysts have said.

Against the backdrop of the FX tightening measures taken by the CBN, there was a reduction in FX utilisation by Deposit Money Banks (DMBs) in Q1: 2015, as observed from the External Sector Development report released recently by the CBN.

The report showed a 4.9 percent Y-o-Y and 6.4 percent Q-o-Q decline in FX utilised by DMBs for “valid” visible (or tangible) imports to $8.4 billion, and a 38.1 percent Y-o-Y and 32.0 percent Q-o-Q contraction in FX utilised by DMBs for “valid” invisible (or services) imports to $5.7 billion.

Consequent on the recent exclusion of 41 items from the list of items valid for accessing FX from all segments of the FX market, analysts at Afrinvest Securities Limited expect a further drop in visible and invisible imports FX utilisation in the country in Q2: 2015 and H2: 2015.

However, while the CBN’s tightened regulations have led to a decrease in FX liquidity, increased FX uncertainty in the local capital markets and heightened pressure on inflation rate, the country’s external reserves seems to have been re-routed to the path of accretion.

An appraisal of the reserves by Afrinvest shows that, consequent on the steady rise throughout July, the external reserves added 7.7 percent between June 24 and July 29, 2015. Equally, in reversal of trend, YTD decline in the reserves has moderated to -9.3 percent ($31.3bn) against the earlier position of -15.8 percent ($29.0) as of June 24, 2015.

Last week, the naira traded flat at N199.10/$1 W-o-W at the inter-bank foreign exchange market. The amount of dollars sold remained reasonably below level of demand, despite sale of the greenback by oil companies. The apex bank continued to intervene at N197.00/$1 in the inter-bank market, hence W-o-W performance remained stable in the segment.

Despite low activity level in the interbank and BDC segment – given the recent foreign exchange policies, the analysts observed some level of improvement in FX rate in the parallel market this week. Parallel market rate opened the week at N243.00/1 on Monday and appreciated 7.4 percent WTD after closing at N225.00/$1 on Friday.

We believe the seeming improvement is linked to the excess supply in the parallel market as commercial banks halt acceptance of dollar deposit into domiciliary accounts due to too much cash in their vaults.

“For the time being, CBN reiterated its stance to maintain the managed floating FX rate regime while seemingly adopting a ‘wait and see strategy’ to determine the next move. In the week ahead, we expect FX rates to remain stable at the interbank/BDC segment, while pressure at the parallel market may soften as activity in that segment of the market further moderate,” Ayodeji Ebo, head, investment strategy, and his team of analysts, said in a report.

Source : BusinessDay

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