By Kayode Tokede
The Central Bank of Nigeria (CBN) has disclosed that the nation’s foreign reserves declined by $52.76million in one week to $35.67billion as at last Thursday amid outflows that increased over inflow.
The foreign exchange buffer in prior week’s Thursday was $35.73 billion.
However, across the foreign exchange windows, the naira traded flat at N385.83 against the Dollar at the Investors & Exporter (I&E) foreign exchange window, while it weakened by 1.1 per cent to N462.00 against the Dollar in the parallel market.
In the Forwards market, the naira weakened across the 3-month (-0.1 per cent to N388.19/Dollar), 6-month (-0.4 per cent to N391.30/ Dollar) and 1-year (-0.7 per cent to N400.25/Dollar) contracts, while the 1-month (N386.50/ Dollar) was flat.
The overnight (OVN) rate declined by 288basis points week-on-week (w/w), to two per cent, as system liquidity was supported by inflows from Open Market Operation (OMO) maturities (N370.00 billion).
Analysts at Cordros Research said, “Barring any significant mopping-up activity by the CBN, we expect the OVN to remain depressed, as inflows worth a combined N328.70 billion come into the system from OMO maturities (N296.03 billion) and FGN bond coupon payments (N32.67 billion).”
The Treasury bills secondary market ended the week on a bullish note as average yield across all instruments contracted by 23 basis points to 1.2 per cent.
The OMO segment remained bullish, as yields contracted by 19 basis points, on average, to 1.2 per cent due to the ample liquidity in the system, and as investors looked to fill unmet demand from the PMA.
In the same vein, the NTB segment was also bullish (average yield contracted by 29 basis points to 1.1 per cent), as participants covered for lost bids at the PMA.
“At the auction, the CBN offered bills worth N124.89 billion with allotments of N12.76 billion of the 91-day, N4.50 billion of the 182-day and N107.62 billion of the 364-day – at respective stop rates of one per cent (previously 1.10%), one per cent (previously 1.55 per cent), and two per cent (previously 3.05 per cent).
“Activity in the Treasury bonds secondary market remained bullish, due to, the significant demand brought about by the excess liquidity in the system, and market players reacting to the significantly reduced offering in the recently released DMO circular.
“Consequently, the average yield across instruments contracted by 125 basis points to five per cent. Across the benchmark curve, yields declined at the short (-23 basis points), mid (-139 basis points) and long (-182 basis points) segments, as investors bought up the JAN-2022 (-56 basis points), JUL-2030 (-199 basis points) and JUL-2034 (-220 basis points) bonds, respectively.
“Next week, we expect investors’ focus to shift to Wednesday’s PMA, as the DMO is set to offer instruments worth N30.00 billion (70.0per cent lower than the previous auction) through re-openings of the 12.50 per cent MAR 2035 and 9.80 per cent JUL 2045 bonds.
“Due to the limited supply from the DMO, we still expect sizeable demand at the secondary market, as investors seek investible options for liquidity, and cover for lost bids at the auction which is likely to be oversubscribed.
“Despite the CBN’s stronger commitment towards exchange rate unification, we still see legroom for the currency to depreciate further in 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,” Cordros Research added.