Naira closes flat at interbank as CBN Injects $263m, CNY 39m into retail SMIS

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Story by Kayode Tokede

The local currency, Naira closed flat at N306.9 against the dollar at the Central Bank of Nigeria (CBN) interbank market as it continues to see support from apex bank’s intervention sales.

The Naira against the Dollar was at N306.95 in prior’s week interbank market of the CBN from N307 it closed 2018.

At the Investors & Exporters Foreign Exchange (I&E FX) window, while the Naira lost 0.25 per cent against Pounds to close at N465.92, it gained 0.05 per cent and 0.37per cent against the dollar and euro to close at N364.94 and N417.58 respectively.

In the parallel market, while the Naira lost 0.28per cent against the dollar to close at N363, it closed flat at N460 and N410 against pounds and Euro respectively.

Meanwhile, the apex bank on last week injected the sum of $263million into the Retail Secondary Market Intervention Sales (SMIS), being its first intervention in that sector this year.

This was in addition to the sum CNY 39 million consummated through a combination of spot and short-tenored forwards, arising from bids received from authorized dealers.

The figures obtained from the CBN revealed that the US dollar-denominated interventions were for requests in the agricultural and raw materials sectors while the Yuan sale was for payment of Renminbi-denominated Letters of Credit for agriculture as well as raw materials.

The Director, Corporate Communications at the CBN, Mr. Isaac Okorafor, said the move was in furtherance of the Governor’s avowed commitment to ensuring foreign exchange liquidity in the system as well as boosting trade and production.

With the rates closing at N359/$1 on last Friday, Okorafor, expressed confidence that the CBN, in the weeks ahead, will sustain its intervention through the sale of foreign exchange to all segments of the market to meet all legitimate foreign exchange demand in the market while also striving to achieve exchange rate stability in the market.

Analysts at United Capital said naira trading would remained within the tight band of N360-N370 dollar in first half of 2019, despite growing fears of an imminent devaluation.

The Lagos based company in its ‘Nigeria Outlook 2019: Sailing Through the Storm’ report said, “We expect the naira to remain relatively stable in H1- resolve to defend the local unit supported by a strong dollar reserve position. However, the outlook for H2-19 is clouded by the likely change in leadership of the CBN from Jul-19.

“We see the naira trading within the tight band of N360/$-N370/$ in H1-19, despite growing fears of an imminent devaluation.

At $43.2billion, the Apex Bank can conveniently meet up to 10 months of import. As such, the outlook for the local currency remains relatively stable in the interim, despite potential pressure in the political space ahead of the 2019 general election.

“Accordingly, we expect FX rate to depreciate marginally at the I & E window, pressured by net capital outflow expected to weigh in Q1-19. Similarly, parallel market rates may witness some pressure but the CBN will maintain a fixed rate at the official window.

The inflow of funds into the Nigerian economy is not expected to improve significantly in H1-19 amid election uncertainties. However, we expect a net capital inflow in H2-19 regardless of the election outcome.

“Downside risks to this outlook include changes in the policy environment traceable to changes at the Apex bank as well as the overall development in the polity. Increased pressure on FX and net capital outflow in Q1-19 points to further depletion of the external reserves; we imagine another $2-3billion decline, if recent the trend is anything to go by. Should this hold true, the CBN would be left with $40-$42billion dollar reserves going into H2-19.”

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