CBN Defends Naira with $186m, Forward Rates Climb
Forward FX contracts appreciated as the market continues to price in the Central Bank of Nigeria (CBN) intervention sales into future exchange rate at the official window.
With growing external reserves, currency market analysts have maintained a positive outlook on the naira exchange rate, anchored on the CBN’s stance to continue with liquidity support.
The Central Bank of Nigeria (CBN) sold US dollar to authorised dealer banks below the official rate to boost the supply side, and redirected the naira exchange rate.
Last week, the CBN sold $186 million to boost the supply side as pressure mounted on the local currency with official exchange rate briefly crossing N1462 per dollar during intraday session on Monday.
Reacting to budding pressure, the Central Bank quickly intervened on Tuesday, selling $36.60 million to curb FX demand and supply imbalance. The official rate remained under pressure despite additional inflows from offshore players.
The naira, however, made a recovery as CBN FX intervention and offshore inflows offset local demand for foreign payments. US dollar inflows from non-Bank corporate and other sources were instrumental to the naira’s weekly gain, and market confidence derives from rising external reserves.
Nigeria’s gross external reserves increased for the nineteenth consecutive week, growing by about 600 million week on week to USD44.606 billion.
In the forwards market, the naira rates appreciated across contracts on the expectation that the market will continue to meet liquidity demand.
Forward contract for 1 month rose by +0.5% to N1,477.12, and the 3-month contract appreciated by +0.9% to N1,525.58 per dollar. Also, the 6-month forward contract climbed by +1.8% to N1,587.15 and 1-year forward contract jumped by +3.4% to N1,711.17 per dollar.
The naira is expected to remain stable, supported by robust FX liquidity. Analysts at Cordros Capital Limited said they expect the healthy FX reserves, favourable current account position, and firmer global monetary easing to reinforce foreign investor sentiment and stimulate FX market inflows.
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