Naira Exchange Rate to Rise as Nigeria Redeems $500m Eurobond
Godwin Emefiele -Governor, Central Bank of Nigeria

Naira Exchange Rate to Rise as Nigeria Redeems $500m Eurobond

The Nigeria’s local currency, Naira is expected to adjust to pressure on external reserves as Nigeria redeems $500 million Eurobond exposure this week.

The outflow, according to market analysts, will pressure the nation’s external reserves and this is expected to impact Naira in the foreign exchange market.

Naira has been surviving upon the Central Bank of Nigeria’s weekly FX intervention amidst scarcity of the greenback following low foreign exchange inflow into the economy.

Busola Jeje, analyst at Tellimer, an emerging market investment firm, said FX is Nigeria’s biggest economic challenge and a key concern for foreign investors.

“While investors’ outstanding backlogs have dropped from US$2bn in August to US$600-800mn in December, driven by de-facto capital controls, foreign investors are unlikely to return unless certain measures are put in place.

“The liberalisation of the FX regime is the only way out, but appetite under Central Bank Governor Godwin Emefiele and President Muhammadu Buhari seems limited.

“The one-off devaluation at the end of 2020 has already been reversed, but it could signal another devaluation to come”, Tellimer’s analyst explained.

Data from Fitch Ratings on issuers shows that Nigeria’s $500 million Eurobond is due on January 28, 2021 for redemption.

Analysts however ruled out possibility of raising fund outside the domestic market due to low interest rate environment.

Despite the fact that the headline inflation rate has maintained an uptrend for 16 consecutive months, yields on fixed income securities has remained low.

In the just concluded week, Naira strengthened against the United States dollar at the Investors and Exporters window (IEW).

Market data indicates that as the exchange rate fell (Naira appreciated) by 0.13% to close at ₦394.17 to a greenback.

However, Naira depreciated against the greenback at the Bureau De Change (BDCs) by 0.43% to close at ₦472.00 to a dollar.

In spite multiple pressures facing the economy, Naira remained unchanged at the parallel market at ₦475.00/USD.

Also, the exchange rate closed flat at ₦380.69/USD at the interbank FX market amid weekly injections of USD210 million by the apex bank.

Of the sum injected, USD100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), USD55 million was allocated to Small and Medium Scale Enterprises and USD55 million was sold for invisibles.

Elsewhere, the Naira rate depreciated for most of the foreign exchange forward contracts.

It was noted that contract for 1 month, 2 months, 3 months and 12 months rates rose (Naira depreciated) by 0.06%, 0.02%, 0.04%, and 0.04% respectively.

It then closed at ₦398.27/USD, ₦401.71/USD, ₦405.61/USD and ₦435.28/USD respectively.

However, Cowry Asset stated that the 6 months rate fell by 0.09% to close at ₦416.23/USD while the spot rate was flat at ₦379.00/USD.

“In the new week, we expect sustained pressure on the external reserves as FGN redeems USD500 million Eurobond maturing this week.

“Hence, we expect Naira for dollar exchange rate to depreciate at most market segments”, Cowry Asset Management posited.

In its note, Afrinvest stated that Brent crude oil price fell 0.6% w/w to $56.06 per barrel at the weekend after International Energy Agency (IEA) slashed its 2021 oil demand outlook.

IEA forecasts a dip in Q1:2021 and annual global oil demand to 94.1 million barrel per day (mbpd) and 96.6mpd, down 0.6mbpd and 0.3mbpd respectively.

“This was on the back of slower pace of recovery following renewed lockdowns to contain the pandemic”, Afrinvest said.

FPI Claims, Swaps Reduce Nigeria’s External Reserves to $16.2bn

Locally, the external reserves increased 0.6% week on week to $36.5 billion following an improved foreign currency inflow in the year.

“In the coming week, we expect Naira to remain within similar band across the different FX segments”, Afrinvest stated.

Naira Exchange Rate to Rise as Nigeria Redeems $500m Eurobond