Parallel market: Naira weakens by -23 per cent in its YtD performance —Analysts

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Analysts at Cordros capital have disclosed that naira has weakened against the dollar by 23 per cent in its Year-till-Date (YtD) performance.

The local currency closed last week at N470 against the dollar

They expressed that naira closed flat against the dollar at N386.00 at the Investors & Exporters Foreign Exchange (I&E FX) window (YTD: -5.6per cent), but weakened by 1.3per cent to N470.00 against the Dollar in the parallel market.

According to Cordros capital weekly report, “In the forwards market, the naira strengthened in the 6-month (+0.4per cent to N386.87/USD) and 1-year (+1.4 per cent to N387.33 against the Dollar) contract, but was flat in the 1-month (N386.11 against the Dollar) and 3-month (N386.67 against the Dollar) contracts.

“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/$ and our REER fair value estimate of N453.67/$ at the current level of intervention in the FX market.”

They expressed that the overnight (OVN) rate crashed by 577 basis points week-on-week (w/w), to 0.6per cent.

“The rate was largely depressed this week, in the absence of significant funding pressures on the system and as inflows from OMO maturities (N243.77 billion) boosted system liquidity.

“Notably, total liquidity in the system averaged N342.94 billion (last week: N792.38 billion) this week, highlighting the effects of last week’s significant outflows (CRR debits: N314.90 billion; FX Retail auction: NGN320.00 billion).

“In the coming week, we expect the OVN rate to expand, as expected inflow from OMO maturities (N281.45 billion) may not be sufficient to limit the impact of outflows on the system.”

They added that activities in the Treasury bills market were muted last week, following continued investor apathy given the current yield levels, and as market participants focused their attention on Wednesday’s NTB PMA.

“Nonetheless, the average yields at the NTB and OMO segments declined by 40basis points and two basis points to 0.1per cent and 0.2 per cent, respectively. This is as market participants covered for lost bids at the PMA, and as banks reinvested maturities in short and long-dated OMO instruments.

Against the foregoing, the average yield across instruments in both markets declined by 18basis points to 0.2 per cent.

“At the PMA, demand was sizeable, relative to the limited supply, as there was an oversubscription of 3.6x on the N167.81 billion worth of bills on offer.

“The auction closed with the CBN rolling over N19.78 billion of the 91-day, and selling N10.00 billion (amount on offer: N40.09 billion) of the 182-day and N138.03 billion (amount on offer: N107.94 billion) of the 364-day, at respective stop rates of 0.035per cent (previously 0.341%), 0.15per cent (previously 0.50 per cent), and 0.30 per cent (previously 0.98 per cent).

“We expect activities in the T-bills market to remain quiet, as investors remain unimpressed by the unattractive yields in the space.”