Naira to Stabilise as CBN Halts FX Sales to Public Sector
The Nigerian local currency, naira, has been projected to appreciate in the new week as Central Bank moves to harmonise foreign exchange (FX) rates.
Recalled the Finance Minister, Zainab Ahmed had hinted that Federal Government is no longer obtaining foreign exchange from the CBN at the official rate, though the policy authority denied the subtle devaluation of the local currency.
With the removal of the official exchange rate during the week, currencies analysts have construed this to mean a move to FX rates unification.
The International Monetary Fund, IMF, had asked the CBN to perfects its multi-tiered exchange rate as a condition for accessing a $1.5 billion loan.
However, the spread between official and parallel market rates has widened, giving room for sharp practices amidst low accretion into the external reserves.
However, the monetary authority’s weekly foreign exchange market intervention appears to have taken a toll on the nation’s external reserves which has continued to free-falling.
In their various reports, Nigerian investors’ bankers have maintained a stance that Naira is strongly overvalued, thus responsible for the lack of foreign inflows.
The country’s FX scarcity pressure was exacerbated following a 28% decline in remittances from Nigerians in the diaspora in 2020, according to a World Bank report.
Last week, the naira tumble against the United States dollars in the foreign exchange markets as the CBN deleted its official exchange rate from the website.
Cowry Asset said despite the CBN move, naira depreciated against the USD at the Investors & Exporters Window, Bureau De Change, and Parallel markets by 0.33%, 0.42%, and 0.21% to close at N411.67, N480.00and N484.00 respectively.
“In the course of the week, the CBN made effort to harmonise the official rate of N379 to a dollar and the Investors and Exporters Window rate as it removed the official rate from its website”.
“Despite CBN move we still saw pressure on the greenback even as external reserves declined week on week by 0.39% to N34.57 billion”, Cowry Asset said.
Foreign exchange rate closed flat at N380.69 at the Interbank Foreign Exchange market amid weekly injections of USD210 million by CBN into the forex market:
Apex Bank allocated USD100 million to Wholesale Secondary Market Intervention Sales (SMIS), USD55 million to Small and Medium Scale Enterprises, and USD55 million was sold for Invisibles.
Elsewhere, analysts said the Naira exchange rate depreciated for most of the foreign exchange forward contracts: 1 month, 2 months, 3 months, 6 months, and 12 months.
In this space, foreign exchange rates rose by 0.02%, 0.11%, 0.11%, 0.04% and 0.01% to close at N413.06, N416.22 N418.97, N427.67 and N445.50 respectively.
However, analysts added that the spot rate remained flat at N379.00 per dollar.
“In the new week, we expect the exchange rate to stabilize at most FX Windows as CBN has begun the process of harmonising the exchange rates given the report that it’s no longer sells dollars to the public sector at the official rate”, Cowry Asset said in a report.
The firm added that the CBN now sells at the Investors and Exporters FX window at the going rate. In a related development, market sentiment was mixed at the market as the values of Federal Government of Nigeria bonds traded moved in mixed directions.
However, analysts said they noted a bullish undertone on the last trading day of the week as yields moderated for most maturities tracked. Meanwhile, the 10-year 16.29% FGN MAR 2027 and the 20-year, 16.25% FGN MAR 2037 gained N0.39 and N0.64 respectively; their corresponding yields decreased to 13.01% (from 13.10%) and 13.86% (from 13.96%) respectively.
However, the 5-year, 14.50% FGN JUL 2021 and 7-year 13.53% FGN APR 2025 lost N0.20 and N0.49 respectively; their corresponding yields rose to 3.01% (from 3.00%) and 12.37% (from 12.22%) respectively.
Meanwhile, the value of FGN Eurobonds traded at the international capital market declined for all maturities tracked. In the new week, we expect local over-the-counter (OTC) bond prices to increase (and yields to moderate) as market participants take cognisance of the new approach by CBN to solving the exchange rate pressure.
Naira to Stabilise as CBN Halts FX Sales to Public Sector
