Foreign reserves drop by $2.42m in one week

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By Kayode Tokede

The nation’s foreign reserves depreciated by $2.42million in one week, as outflows offset flows for Central Bank of Nigeria (CBN)’s interventions across the various foreign exchange windows.

The Central Bank of Nigeria (CBN) disclosed that the foreign exchange buffer closed October 22 at $35.669billion, 0.01 per below $35,672billion reported as at October 16,2020.

“Despite the CBN’s stronger commitment towards exchange rate unification, we still see legroom for the currency to depreciate further over the medium-to-long term – at least towards its REER derived fair value. Our prognosis is hinged on (1) the widening current account (CA) position, (2) currency mispricing, which could induce speculative attacks on the naira, and (3) the resumption of FX sales to the BDC segment of the market which should place an additional layer of pressure on the reserves,” said analysts at Cordros Research.

However, across the windows, the naira was marginally lower, but closed flat at N386.00 against the Dollar at the Investors & Exporters (I&E) foreign exchange window, while it weakened by 0.2 to N463.00/$ in the parallel market.

In the Forwards market, the naira appreciated across the 3-month (+0.2 per cent to NGN387.61/$), 6-month (+0.6 per cent to N389.09/$) and 1-year (+1.2 per cent to N395.39/$) contracts, while the 1-month (N386.49/$) was flat.

Meanwhile, the overnight (OVN) rate increased by 7.75points week-on-week (w/w) to 9.8per cent.

The OVN rate was depressed for most of the week, as system liquidity was boosted by inflows from OMO maturities (N296.03 billion), FGN bond coupon payments (N32.67 billion) and FX retail refunds.

However, funding pressures from CRR debits, FGN bond (N30.00 billion), OMO (N100.00 billion) and FX auctions debits offset the impact of the inflows and triggered the eventual expansion in the rate.

Activities in the Treasury bills secondary market remained strong, as the buoyant system liquidity and retail demand sustained active trading in the market.

Consequently, the average yield across all instruments contracted by 72basis points to 0.5 per cent.

Across the segments, the aforementioned factors drove down yields significantly at the OMO (average yield contracted by 73 basis points to 0.5 per cent) and NTB (average yield contracted by 69 basis points to 0.4 per cent) segments of the market.

At last week’s OMO auction, the CBN offered bills worth N100.00 billion with allotments of N10.00 billion of the 138-day, N10 billion of the 180-day and N80.00 billion of the 362-day bills – at respective stop rates of 3.74 per cent (previously 4.10 per cent), 6.80 per cent (previously 7.10 per cent), and 8.00 per cent (previously 8.45 per cent).

The Treasury bonds secondary market remained bullish, as investors re-invested the ample liquidity in the system and covered for lost bids at Wednesday’s PMA.

Thus, the average yield across instruments contracted by 76 basis points to 4.2 per cent. At the PMA, the DMO offered instruments worth N30.00 billion to investors through re-openings of the 12.50 per cent MAR 2035 (Bid-to-offer: 11.3x; Stop rate: 4.97 per cent) and 9.80 per cent JUL 2045 (Bid-to-offer: 4.4x; Stop rate: 6.00 per cent) bonds.

Despite a total subscription of N235.87 billion, the DMO eventually allotted instruments worth N45.00 billion, resulting in a bid-cover ratio of 5.2x.