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Pressure on naira expected on back of falling oil prices

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Outlook for naira dims as analysts anticipate pressure on the local currency this week due to falling oil prices amid sustained high demand for U.S. dollars by end users.

The price of crude oil (Bonny Light) has dropped by 7.76 percent to $101.0/barrel as at August 25, 2014 from $108.84/barrel as at March 2014, according to data obtained from the Central Bank of Nigeria’s (CBN) website.

Last week, the local currency depreciated marginally by 0.02 percent (N0.04) week-on-week to N162.15/$1 at the interbank market segment. At other alternative market segments, the local currency appreciated in line with expectations of the analysts at Cowry Assets Management Limited by 2.05 percent (N3.50) to N167.00/$1 at the bureau de change market and at the parallel market by 2.04 percent (N3.50) to N171.50/$1.

However, the CBN offered USD750 million but sold a total of USD745.21 million (or N116.05 billion) to end users at the Retail Dutch Auction (RDAS) last week. This was a 6.5 percent increase from the USD699.68 million (or N108.96 billion) sold in the preceding week. The official USD/naira rate thus held steady at N155.73/$1.

Meanwhile, local units of oil multinationals sold a sum total of USD184 million to lenders – Exxon Mobil sold USD50 million, Italian multinational Eni sold USD17 million, while Total and Chevron sold a combined USD117 million.

Also this week, interbank rates are expected to rise as combined outflows via purchase of treasury notes and foreign exchange triggers liquidity strain in the absence of any major inflow.

The CBN will this week auction treasury bills worth N182.85 billion via the primary market, viz: 91-day bills worth N27.85 billion; 182-day bills worth N65.00 billion; and 364-day bills worth N90.00 billion. Also, treasury bills worth N182.85 billion will mature via the primary market viz: 91-day bills worth N27.85 billion; 182-day bills worth N65.00 billion; and 364-day bills worth N90.00 billion.

Last week, movements in the Nigerian Inter-Bank Offer Rates (NIBOR) were mixed- declining for shorter tenor buckets and advancing for longer tenor buckets. NIBOR declined for the overnight and 1 month tenor, respectively to 11.12 percent (from 11.37 percent) and 12.56 percent (from 12.79 percent). However, NIBOR advanced for the 3 months and 6 months tenors, respectively, to 13.46 percent (from 13.35 percent) and 14.38 percent (from 14.14 percent).

At the bond market this week, analysts expect sustained bearish activities and resultant price declines against the backdrop of expected liquidity strain in the financial system.
At the over-the-counter market, last week, prices of Federal Government bonds declined for most tracked maturities. The 7-year, 16.00 percent FGN June 2019 paper depreciated by N0.3 (yield rose to 11.18 percent from 11.12 percent); the 5-year, 15.10 percent FGN April 2017 note shed N0.35 (yield climbed to 11.17 percent from 11.04 percent); while the 3-year, 13.05 percent FGN August 2016 debt tanked by N0.13 (yield increased to 11.14 percent from 11.09 percent). However, the 20-year 10.00 percent FGN July 2030 bond rose by N0.30 (yield fell to 12.10 percent from 12.15 percent) while the 10-year, 16.39 percent FGN January 2022 instrument appreciated by N0.05 (yield declined to 11.71 percent from 11.72 percent). Meanwhile, Nigeria’s 14.20% FGN March 2024 bond was added to the JP Morgan Bond Index on Friday, August 29 2014.

Article Credit: Businessdayonline

Updated 4 Years ago

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Tags:     Central Bank of Nigeria     U.S.     Retail Dutch Auction     Exxon     Naira