Naira depreciates by 1.1% wow to N390.25/$

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The naira at the Investors & Exporters Foreign Exchange (I & E FX) window depreciated by 1.1 per cent week-on-week (wow) to N390.25 against the dollar on Friday.

According to analysts, the naira weakened to its lowest level against the dollar since the introduction of the window in 2017 as the Central Bank of Nigeria’s (CBN) supply in the space remained low.

Similarly, the naira hit record lows in the parallel market, falling by 2.2per cent to N495.00 against the dollar as lack of access to foreign exchange at the official windows has funneled demand to the parallel market.

This also followed recent comments by the CBN governor saying that the parallel market makes up only five per cent of the overall FX market and should not be used to determine the naira’s true value.

Year-to-Date, the naira is down by 6.6per cent and 26.9per cent at the I & FX and in the parallel market, respectively.

In the same vein, the naira weakened across the 1-month (-1.2 per cent to N390.28/$), 3-month (-1.1 per cent to N390.38/$), 6-month (-1.1per cent to N390.57/$) and 1-year (-0.9% to N391.44/$) forward contracts.

Nigeria’s FX reserves declined by $40.05 million w/w to $35.45 billion, as the outflows for the CBN’s interventions across the various FX windows continue to outstrip dollar inflows.

Analysts at Cordros capital stated that, “Going forward, we expect CBN’s FX management strategies to continue supporting the naira at its current level at the official and I&E windows.

“However, we believe the parallel market rate will remain volatile and continue to trade above the CBN’s Relative Purchasing Power Parity (RPPP) of N433.64/USD and our REER fair value estimate of N453.67/USD at the current level of intervention in the FX market.”

They explained that the overnight (OVN) rate contracted by 283 basis points w/w, to 1.5per cent.

“The rate maintained its downward trajectory through the week, before rising slightly on Friday, as inflows for OMO maturities (N113.06 billion) boosted the net liquidity position (average: N326.89 billion) and offset funding pressures from the CBN’s weekly FX auctions,” they explained.

With little to no activity occurring in the market amidst the low yields on offer, the Treasury bills secondary market traded with mixed sentiments, albeit with a bullish tilt, as average yield across both market segments pared by two basis points to 0.1per cent.

Across the segments, average yield declined by 3bps to 0.1per cent at the OMO segment, and by 1bp to 0.1per cent at the NTB secondary market, as investors covered for lost bids at the NTB PMA. At the PMA, the CBN offered bills worth N150.60 billion with allotments of N20.37 billion of the 91-day, N19.16 billion of the 182-day and N111.07 billion of the 364-day – at respective stop rates of 0.02 per cent (previously 0.004 per cent), 0.09% (previously 0.15 per cent), and 0.15per cent (previously 0.30%).