CBN, oil firms’ dollar supply to strengthen naira

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Outlook for naira seems bright as analysts are hopeful that the expected dollar supply from the Central Bank of Nigeria (CBN) and oil majors would boost naira this week.
“This week, we expect further strengthening of the naira at the official window on the back of sustained dollar supply from oil majors particularly for month-end obligations”, analysts at Cowry Asset Management said.

Also analysts at Afrinvest anticipate the naira will be driven by sustained supply of the green back and moderated by dollar supplies by oil majors.

Last week, the local currency depreciated by 0.04% to N164.03/$1 at the inter-bank market, despite dollar sales by oil majors, Royal Dutch Shell and Chevron, to end users to meet their month end obligations.

On Monday, the naira shed 55 kobo compared to its Friday level to close at N163.85/$1.00, its weakest close since June despite CBN dollar auction and sales by Shell. The pressure was increased on Wednesday prompting the CBN to intervene directly in the interbank market as the naira traded as low as N164.40/$1.00 during midday trades. In spite of the CBN interventions on Wednesday, the naira continued to experience huge volatile swings, opening at N163.60/US$1.00 before closing N163.90/US$1.00, a N1.30 depreciation compared to its closing price on Thursday. Week-on-week (W-o-W), the naira shed 65 kobo and 50 kobo to N163.95/US$1.00 and N169.00/US$1.00 at the interbank and BDC segments, respectively.

The CBN increased its dollar supply at the primary auction last week by $50.0 million to $700.0 million in an attempt to comease the pressure on the naira which has lost approximately N1.00 at the interbank this month. The apex bank offered $350.0 million each on Monday and Wednesday which were fully subscribed at the marginal rate of N155.75/US$1.00.

According to analysts at Afrinvest, speculations emerged as regards the limited capacity of the CBN to defend the local unit in view of the declining oil prices and sustained demand for the green back due to increased capital reversal.

Also, inter-bank rates are expected to moderate this week following maturing treasury bills worth N258.8 billion, and the DMO September 2014 bond which will mature on 28. All are expected to hit the system and boost liquidity.

The inter-bank money market commenced the week highly liquid as rates declined across various money market instruments. This was reflected in the call and OBB rates closing at 10.8% and 10.4%, 4bps lower than the Friday close. This was due to the injection of N293.0 billion FAAC allocation which hit the system.

Subsequently, the CBN mopped up N130.0 billion via OMO at the stop rate of 10.8%. On Wednesday, the Federal Government made a cash call of N67.7 billion from the market to fulfill joint venture (JV) agreement with oil companies, while the DMO also rolled over maturing T-bills worth N114.4 billion via the 91 days, 182 days and 364 days tenors.

In addition, the CBN mopped up N70.3 billion on Thursday after repaying OMO debt worth N144.4 billion the same day. These liquidity extractions failed to drive rates higher at the inter-bank, due to sustained level of high liquidity in the market (opening balance of N300.4 billion on Thursday).

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