MPC: Analysts rule out monetary tightening, as naira remains strong
Ahead of the Monetary Policy Committee (MPC) meeting scheduled for Monday and Tuesday in Abuja, analysts in the financial services sector have ruled out the possibility of a further monetary tightening.
Their argument is based on easing external sector pressures, moderating Core inflation and downside risk of further increasing already high government borrowing costs.
“With the MPC likely to face a choice between easing and maintaining status quo on policy rates, we envisage committee members will vote to hold all rates constant while consolidating on recent gains in the forex market,” analysts at Afrinvest Securities Limited said.
This is coming as ‘Biodun Adedipe, chief consultant of Biodun Adedipe Associates Limited, believes that the CBN has no ambition for single-digit interest rate this year, but optimistic of steady forex supply and local sales growth.
There has been relative stability in the foreign exchange market following improved liquidity, as the CBN has sustained its interventions in the market.
The CBN on Monday intervened in the forex market, selling $195.0 million in total – US$100.0 million to the wholesale segment, $50 million to the Small and Medium Enterprises (SMEs) segment and $45.0 million allocated to the Retail invisibles segment to cater for demand for business/personal travel allowances, school tuition, medical fee, etc.
Consequently, naira appreciated 3bps to N305.80/$1 from the previous week’s close of N305.90/$1 at the official inter-bank market.
At the FMDQ Nigerian Autonomous Foreign Exchange Fixing (NAFEX) segment, a total of $257.0m was traded between Tuesday and Friday; yet, the currency depreciated 0.2 percent Week-on- Week at the window to N365.33/$1 from N364.66/$1 in the prior week.
The local currency has traded between N365 and N367 per dollar at the black market last week, the same level it traded the previous week. External reserves rose to $30.51 billion as of July 19, 2017 from its low of $30.32 billion on July 7, 2017, data from CBN show.
“We expect further stability of the naira/USD exchange rate amid build up in external reserves,” analysts at Cowry Asset Management Limited said.
At the FMDQ OTC Futures segment, the value of open contracts closed the week lower at $2.2m from the previous week’s close of $2.8bn owing to the NGUS JULY 2017 contract valued at $657.6m which matured during the week. In line with trend, the CBN replaced this maturing contract with the NGUS JULY 2018 instrument.
However, in line with recent trend, we do not expect keen interest in the newly opened contracts. All contracts opened since May 2017 – following upward revision of prices – have received minimal interest.
The NGUS JUN 2018 and NGUS JUL 2018 have received a total subscription of $56.9m and $18.3m respectively while the NGUS MAY 2017 has not attracted any subscription since the change in settlement exchange rate to NAFEX from Nigerian Foreign Exchange Fixing (NIFEX).
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