Naira depreciates by 4.5% wow at I & E FX window
The naira weakened against the dollar by 4.5 per cent on its week-on-week (w/w) performance to N410.25/USD at the Investors & Exporters Foreign Exchange (I&E FX) window.
It also depreciated by 1.1 per cent to N470.00 wow against the dollar in the parallel market.
According to analysts at Cordros capital, “In the Forwards market, the rates on 1-month (-4.9 per cent to N418.50 against the dollar), 3-month (-5.5per cent to N428.25 against the dollar), 6-month (-6.9per cent to N445.83 against the dollar) and 1-year (-8.8 per cent to N477.56 against the dollar) contracts all weakened.
“Given the expected pressure on the external reserves amid weak portfolio inflows, we expect the naira to depreciate closer to its fair value implied by long-run REER (N453.67) in the medium term.
“Our baseline expectation is that the CBN will depreciate the naira by 5.3per cent to N400 against the dollar in the interbank market and 5.1 per cent to N415 against the dollar at the I & F FX window.”
However, the overnight (OVN) rate expanded slightly by 25basis points w/w, to 0.8 per cent, as outflows for CBN’s weekly auctions and Cash Reserve Requirement (CRR) debits outweighed inflows from OMO maturities (N431.18 billion) and FX retail refunds.
“In the coming week, we expect the OVN rate to contract, as inflow from OMO maturities (NGN411.04 billion) hits the system.
“The Treasury bills secondary market continued to trade with bearish sentiments through the week, following the sluggish momentum in the market despite the liquidity influx in the system. Thus, average yield across all instruments expanded by six basis points to 0.5per cent.
“Across the segments, average yield expanded by three basis points and eight basis points to 0.6 per cent and 0.5per cent at the OMO and NTB secondary markets, respectively.
“At this week’s NTB PMA, the CBN rolled over maturing bills worth N74.84 billion with allotments of N10.00 billion of the 91-day, N20.00 billion of the 182-day and N44.84 billion of the 364-day – at respective stop rates of 0.0350 per cent (previously 0.0480 per cent), 0.5000per cent (previously 0.5000 per cent), and 1.2100 per cent (previously 1.1390 per cent).
“In the coming week, we still expect activities in the T-bills secondary market to remain quiet, following the relative unattractiveness of instruments in the space.
On Treasury bonds, analysts at Cordros capital, stated that “Bearish sentiments prevailed in the Treasury bonds secondary market, as investors sustained profit-taking for year-end activities. Consequently, the average yield expanded by 21 basis points to 6.1per cent.
“Across the benchmark curve, average yield expanded at the short (+26bps) and mid (+62bps) segments, due to sell-offs of the JAN-2026 (+113basis points) and MAR-2027 (+91bps) bonds, respectively. Conversely, average yield contracted at the long (-29 basis points) end, following buying interest in the MAR-2050 (-93 basis points) bond.”
“We expect the bearish sentiments in the FGN bonds secondary market to be sustained, as investors continue to reprice yields given stretched valuations.”
