Naira expected to remain stable on the back of CBN interventions
The naira is expected remain largely stable this week, across all markets, as the traders count on the Central Bank of Nigeria (CBN) to continue its weekly interventions in the foreign exchange market.
The CBN last week, sustained its supply of US Dollars in the foreign exchange markets, offering a total of $186.50mm through special interventions conducted during the week-ended May 26, 2017, according to data reported by the FMDQ – OTC.
The interventions ensured that the official exchange rate in the inter-bank market remained largely stable, only declining marginally by ₦0.10 to close at ₦305.35 to the US$, indicating a 0.03 percent decrease, when compared to ₦305.45 to the US$, reported at the end of the previous week-ended May 19, 2017.
This southward movement in the inter-bank market pushed the spread between the Bureau de Change (BDC) and inter-bank market exchange rates northward by ₦0.10 to ₦74.65, representing a 0.13 percent increase from the spread of ₦74.55 recorded for the previous week-ended May 19, 2017.
However, an inflow of about N200 billion in budget allocations to states and a refunded N131 billion in matured treasury bills to lenders, increased liquidity in the interbank market last week, raising concerns that the naira may come under pressure this week. Traders however say that the CBN is expected to sell more FX in the interbank market this week, which will suck up the liquidity out of the market and likely see the naira make some marginal gains this week.
But profit hunters are expected to try and take gains in the stock market, which saw the All Share Index (ASI), hit a 10-month high on Friday, 26 May.
The index rose by 2.1 percent to 29,064 points on Friday, its highest level since July last year, lifted in particular by gains in First Bank Holdings, which rose the maximum 10 percent.
The rally has helped push the index above 29,000, a milestone for investors, and erase year-to-date losses. Over the course of 2016, stocks fell 6.2 percent.
Other gainers include pan-African banking group Ecobank , up 5 percent, while Guaranty Trust Bank was up 5 percent, Zenith Bank gained 4.99 percent and Dangote Cement rose 2.33 percent.
Banking stocks have benefited from the CBN’s continued intervention in the stock market, which has improved the outlook for both banking and non-banking stocks.
During the week, the CBN held a special intervention to clear the backlog of matured foreign exchange obligations for the Raw Materials, Agriculture, Airlines and Petroleum products sectors, a move that analysts see as positive for corporate performance in the long run.
Corporate performance has also benefited from the stability in the exchange rates in the last few months.
In the Bureau de Change (BDC) market, the exchange rate remained unchanged to close at ₦380 to the US$ for the week-ended May 26, 2017, same figure recorded at the end of the previous week-ended May 19, 2017.
In the Investors’ and Exporters’ foreign exchange window, a turnover of US$439 million was recorded for the week-ended May 19, 2017.
Similarly, in the OTC FX Futures market, the 11th Naira-settled OTC FX Futures Contract NGUS MAY 24, 2017 with notional amount of $253.61 million, matured and settled on FMDQ on Wednesday, May 24, 2017.
The CBN replaced this with a new 12-month contract, NGUS MAY 30 2018with notional amount on offer of $1 billion at ₦396.06, and repriced their quotes on the one (1) – eleven (11) month contracts.
Within this market, contracts worth $33.85 million traded in six (6) deals, as compared to the previous week’s total of $220.60 million traded in two (2) deals.
For the week-ended May 19, 2017, trading activity in the Spot FX market between the banks and their clients stood at $822.06 million (average daily turnover of $164.41 million), representing a 0.26 percent decrease from the $824.22 million (average daily turnover of $164.84 millon), recorded in the previous week.
Activity in the Spot FX market amongst banks for the same trading week revealed a 23.47 percent decrease, as a total turnover of $78.52 million (average daily turnover of $15.70 million) was recorded against the $102.60 million (average daily turnover of $20.52 million) reported the previous week.
The CBN maintained its marginal rate for the Secondary Market Intervention Sales (SMIS) – Wholesale Forwards intervention at ₦320, Small and Medium Enterprises (SMEs) and Invisibles at ₦357 to the US$.
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