Friday, February 23, 2024

Anxiety as Nigeria’s foreign exchange reserve declines further to $34.22bn


There is anxiety in the monetary sector as Nigeria’s foreign exchange reserve continues to decline.

The gross reserve position declined by $86.76 million week- on- week to close at $34.22 billion on the last day it was tracked in June (26 June).

As the fx market reacts to the latest development that has played out in the month of June, the Naira depreciated by N3 or 0.39 percent w/w to N773/$1 from N770/$1 at the parallel market as fx market and traders continue reacting to the forces of demand and supply.

Also, at the investors’ and exporters’ FX window, the Naira edged the United States’ dollar as more funds inflow hit the system with a gain in the naira N0.92 or 0.12 percent w/w to close at N769.25/$1 from N770.17/$1 in the last week.

This comes as traders continue to position themselves in a bid to ascertain the fair value of the naira.

Also, following the latest development in the fx market, the Naira at the Forward Contracts Market weakened across all forward contracts against the dollar for another week except for the 12-months.

Forward Contract gained against the dollar by 5bps to close at N878.26/$1.

Contrarily, the dollar edged the naira by +75bps, +7bps, 6bps, and +23bps w/w to close at N764/$1, N775.12/$1, N785.13/$1, and N815.39/$1 at the 1-month, 2-months, 3-months and 6-months tenor contracts respectively.

Elsewhere, Oil futures were higher on Friday due to supply constraints outweighing demand concerns, spurred by a lower than expected US crude inventory (actual: -9.6 million, consensus: -1.8 million) and anticipation of Saudi Arabia’s 1 million barrels per day output cut in July.

Also, the Bonny Light crude price took a reversal by 2.20 percent or ($1.65) w/w, to close at $73.45 per barrel on Wednesday from $75.10 per barrel in the previous week.

“In the weeks ahead, money market pundits expect the re-introduction of the “willing buyer, willing seller” model at the IEW to influence the exchange rate direction”

As the foreign exchange market remains volatile in the near term, experts at Cowry anticipate the market to adjust in line with the prevailing forces of demand and supply trade in a calm position against the greenback barring any further market distortions.

In the weeks ahead, money market pundits expect the re-introduction of the “willing buyer, willing seller” model at the IEW to influence the exchange rate direction.

“Nonetheless, while the CBN’s abolishment of its multiple FX windows is positive in boosting foreign investors’ confidence, we think they will adopt a wait-and-see approach, for now, looking for signals on the CBN’s plans to start clearing the FX backlogs and boosting FX supply to support the market in the near term,” Cowry Research disclosed.

Meanwhile, events at the money market last week showed that the CBN refinanced N187.11 billion in T-bills that matured at a lower cost of funds for the Apex Bank.

Notably, stop rates for the 91-day bill, 182-day bill, and 365-day bill moderated to 2.87 percent (from 4.89%), 4.37 percent (from 5.12%), and 6.23 percent (from 8.24%), respectively.

Investors in the secondary market traded in tandem with the bullish sentiment witnessed in the primary market.

Hence, NITTY declined for all tenor buckets tracked. Specifically, NITTY fell for 1- month, 3-month, 6-month, and 12-month maturities to 2.21 percent (from 2.88%), 2.99 percent (from 3.86%), 4.27 percent (from 4.94%), and 6.96 percent (from 8.26%), respectively.

In the interbank space, activity in the OMO market was muted as there were no auctions or maturities.

However, NIBOR fell for most tenor buckets, as NIBOR for Overnight funds, 1-month, and 3-month tenor buckets moderated to 1.75 percent (from 4.95%), 6.65 percent (from 8.61%), and 8.78 percent (from 9.26%), respectively.

On the other hand, NIBOR for 6 months rose to 9.85 percent (from 9.80%), respectively.

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