CBN launch 5-Year Contracts to boost FX inflow as average T-Bill yield drop

The Central Bank of Nigeria has introduced forty seven new monthly future contracts to boost foreign exchange inflows.

In a note, FSDH stated that forty seven new monthly contracts have been introduced from February 13, 2020 in addition to existing 13 contracts.

“This brings the total number of FX future contracts to 60”, the firm revealed.

However, MarketForces gathered that the apex bank decision to increase future contracts is not unconnected with persistent reduction in the external reserves in the recent time.

Foreign receipts from sales of crude oil, foreign investment and others sources have not come up strong to boost external reserves.

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According to analysts countries need external reserves to keep FX rate strong, maintain competitively priced export and provide confidence for investors.

With its multi-tiered exchange rates, the CBN has not failed to support naira with FX supply to keep naira stable.

Data shows that Nigeria’s external reserves have nosedived to $37.2 billion on Sunday on the back of weak foreign investment inflows and improve dollar earnings.

Recently, WSTC Securities Limited predicted that the CBN would introduce new policies to raise external reserves account.

Analysts considered that external reserves balance of $35 billion is the apex bank resistance level and this would trigger renew drive towards policy formulation.

The CBN said it would continue to support naira and has no intention devalue the currency in the immediate.

It however revealed that there may be FX adjustment if external reserves dropped below $30 billion mark.

FSDH said the CBN introduced the 5-Year FX future contracts to boost FX inflows, strengthening reserves and support the naira.

“Forty seven new monthly contracts have been introduced from February 13, 2020 in addition to existing 13 contracts. This brings the total number of FX future contracts to up to 60.

Analysts at FSDH said since the launch in June 2016, the CBN sold approximately $34.83 billion on FMDQ Securities Exchange.

There have been no settlement defaults, in case of FX future contracts over the last 43 maturities, worth $25.43 billion.

Meanwhile, Nigerian Treasury Bills market ended the trading session on a positive note last week. Average yield declined 24 basis points to 3.8 percent compare to 4.04 percent in the previous period.

FSDH said buying interest was witnessed across short, medium and long tenor maturities with average yield compression 24, 62 and 4 basis points respectively.

Yields on the NT-Bills have declined to single digit from double digits at the beginning of the first quarter in 2019.

Also, average Open Market Operation (OMO) yields sloped down by 19 basis points to 13.25 percent as against the last close of 13.44 percent.

Meanwhile, average across the short, medium and long term maturities declined by 9, 34 and 19 basis points.

FSDH noted that yields on 36 bills fell, with the 4Jun-20 maturity bill recording highest yield decline of 68 basis points.

Yields on 2 bills advanced with 12-Mar-20 maturity bill registering the highest yield increase of 80 basis points.

At the last OMO auction held last week, CBN sold bills worth N14.87 billion.

FSDH remarked that OMO activities remain the CBN primary tool in regulating system liquidity. In January, OMO sales increased 19.38 percent to N1.54 trillion from N1.29 trillion in December, 2019.

CBN launch 5-Year Contracts to boost FX inflow as average T-Bill yield drop by Julius Alagbe 

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