Analysts expect FX demand pressure as JP Morgan delists Nigeria

by | October 5, 2015 9:31 am

Analysts in the investment and securities segment of the financial services sector expect an increase in demand for foreign exchange (FX) as JP Morgan delists Nigeria from its Government Bond Index for Emerging Markets (GBI-EM).

JP Morgan had last month said it would drop FGN Bonds from its index, citing a lack of liquidity and currency restrictions.

But the Central Bank of Nigeria (CBN) and the Bankers’ Committee have agreed that Nigerians should not get worried about the JP Morgan delisting, which has taken place.

“We have been able to keep exchange rate very stable, which one of the positive impact of the demand management and the totality of the forex management position taken by the CBN. We all agreed that irrespective of the actions of JP Morgan and any other party we need to reserve and manage the FX for Nigeria and for Nigerians,” Bisi Onasanya, managing director/CEO, First Bank of Nigeria Limited, said while addressing the media on FX after the 324th Bankers’ Committee’s meeting in Lagos.

However, the naira last week fell week-on-week against the dollar on resurgent dollar demand following resumption of economic activities following penultimate week’s public holidays. Week-on-week, the naira declined by 0.90 percent to N224/$ from N222/$ at the Bureau de Change segment; at the parallel or black market, the local currency slid by 1.35 percent to N226/$ from N223/$.

The CBN clearing rate and interbank rate however remained steady at N197/$ and N199.10/$, on resumption in supply of $60,000 in bi-weekly auctions to BDCs as against $30,000 the preceding week due to the Eid el-Fitre public holidays.

Meanwhile, 3 months and 6 months quotes at over-the-counter forwards market, indicate likely depreciation of the naira – they are expected to sell at N208.82/$ (from N208.42/$ in the preceding week) and N217.76/$ (from N217.02/$), respectively.

However, 12 months quotes at over-the-counter forwards market indicate likely appreciation of the naira against the dollar at N232.70/$ (from N232.81/$).

At the money market this week, interbank rates are expected to remain relatively stable barring any unscheduled inflows/outflows from the banking system, analysts at Cowry Asset Management Limited said.

Last week, the Nigerian Interbank Offered Rates declined on the lingering impact of N442 billion Federation Accounts Allocation Committee (FAAC) funds, which were fully transmitted into the system.

Furthermore, there was a boost in liquidity due to N197.97 billion OMO repayments, however, 275- day treasury bills worth N53.08 billion were auctioned via OMO.

Consequently, interbank rates declined across board – Overnight funds rate, 1 month, 3months and 6 months NIBOR fell to 4.54 percent (from14%), 14.56 percent (from 15.75%), 15.73 percent (from 16.90%) and 16.88 percent (from 18.05%), respectively.

This week, T-bills worth N89.20 billion will be auctioned via the primary market: 91-day bills worth N25.40 billion; 182-day bills worth N33.49 billion and 364-day bills worth N68.18 billion while bills of equivalent amounts and tenors will also mature.

Meanwhile, week-on-week, the standing lending facility declined by about 90 percent to close at N212 billion (from N402bn) while the standing deposit facility advanced by 77.5 percent to N409.95 billion (from N49.20bn).