Naira to remain stable at interbank, BDC as CBN keeps rates unchanged

by | July 27, 2015 8:48 am

Foreign exchange (FX) rates are expected to remain stable this week at the interbank market and Bureau De Change (BDC) segment of the FX market, while pressure at the parallel market may worsen slightly due to the decision of the Monetary Policy Committee (MPC) to maintain status quo, according to Ayodeji Ebo, head, investment research, Afrinvest Securities Limited.

The MPC last week retained the Monetary Policy Rate (MPR) at 13 percent, with an interest rate corridor of +/-200 basis points. It also retained the harmonised Cash Reserve Ratio (CRR) on public sector and private sector deposits at 31 percent, and liquidity ratio at 30 percent.

The naira traded within a tight range of N199.05/$1 and N199.10/$1 last week, depreciating 3bps W-o-W at the interbank FX market. The perceived stability stayed driven by CBN’s continuous intervention. The apex bank tweaked the official exchange rate once more to N197.00/$1, 5 kobo more than the rate at which it closed the previous week. Supply of the greenback to the market was weak relative to the demand from customers as there was no record of supply from oil companies last week.

Meanwhile, FX rate was reviewed downwards to N160.00/$1 for Nigerians on pilgrimage by the Federal Government.

Pressure continues in the parallel market as customers scramble for hard currency outside the official sources. Parallel market rate opened the week at N241.00/1 on Monday and closed at N243.00/$1, hence depreciating 0.8 percent WTD.

In a related development, Nigeria’s external reserves has risen 5.9 percent MTD to $30.7 billion, according to the CBN.

Analysts believe this is expected given CBN’s increased efforts to reduce speculative attacks on the local unit. Nonetheless, benchmark Crude Oil price (Brent) declined 3.6 percent W-o-W to $55.10 amid speculations that the nuclear deal reached by Iran and the six world-power nations will usher in another era of excess crude supply relative to global demand. This suggests a weaker outlook for global oil prices.

“This week, we expect minimal depreciation and relative stability as the alternative markets approach resistance level,” analysts at Cowry Asset Management Limited, say.

With unexpected inflows into the banking system this week, analysts expect further increase in interbank rates as the central bank will auction N102.67 billion in treasury bills via open market operations.

Money Market rates — Open Buy Back (OBB) and overnight – trended high on all trading days last week as market liquidity stayed at low levels after opening at N89.5 billion last Thursday. With no liquidity inflow into the system, OBB and Overnight rates opened the week at 12.1 percent and 12.8 percent, respectively, on Tuesday.

On Wednesday, however, rates jumped to 23 percent for the OBB and 24.3 percent for the Overnight as the Nigerian National Petroleum Corporation withdrew its funds from banks to the CBN to harmonise their account with the apex bank.

Despite T-Bills maturity worth N159.9 billion on Thursday, rates rose 6 percent (OBB) and 5 percent (Overnight). This was on the back of the weekly Cash Reserve Ratio (CRR) debiting and the N162.9 billion roll-over and re-issuing of T-Bills instruments. In line with trend, average rates in the T-Bills market was flat W-o-W.