Naira depreciates by 0.05% to N365.87 at I & E FX market

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The Naira depreciated against the Dollar on Tuesday by 0.05 per cent to close at N365.87 in the Investors &Exporters Foreign Exchange (I & E FX) window.

According to FMDQ OTC securities, total turnover in the I& E FX moved from $113.23 million to $292.45, with trades consummated within the N359.00-N366.75/dollar band.

At the parallel market, the naira remained flat at N361 in the parallel market while at the Central Bank of Nigeria (CBN) official rate, it remained flat at N306.90 against the dollar.

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.

“Nonetheless, we expect pressure on reserves to ease in H2-19 on the back of increased capital inflow. That said, in the absence of profound changes in the policy environment, FPIs in search of cheap naira assets will dominate capital importation into Nigeria. FDIs on the other hand may remain on the sidelines, as they await policy signals from the authorities to make their move.”

Meanwhile, the overnight lending rate declined, albeit still remaining elevated, by 75 basis points to close at 27.25per cent.

The CBN conducted an Open Market Operation (OMO) auction selling a total of N10.73 billion – N15.70 million of the 107DTM, NGN761.5 million of the 170DTM, and N9.95 billion of the 317DTM – in bills at respective stop rates of 11.90per cent, 13.50per cent and 15.00per cent.

Proceedings in the Treasury bills market were bearish, as average yield rose by eight basis points to close at 15.46per cent.

Sell pressure was concentrated at the short (+16 basis points) and long (+6 bps) ends of the curve, with yields on the 16DTM (+70 basis points), and 268DTM (+41 basis points) bills expanding, respectively. Conversely, yield at the mid (-one basis point) segment contracted, following demand for the 100DTM (-50 basis points) bill.

Sentiments in the bond market were mixed, albeit with a bullish tilt, as average yield fell by two basis points to 15.27per cent. Yield contracted at the mid (-5 basis points) segment, following demand for the JAN-2026 (-15 bps) bond. On the flip side, a selloff of the JUN-2019 (+three basis points) bond led to yield expansion at the short (+one basis point) end of the curve. Yield at the long segment closed flat.

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