By HOPE MOSES-ASHIKE
Interbank rates, which increased last week, may strengthen while the naira/dollar exchange rate is expected to strengthen on the back of expected liquidity in the financial market.
Traders foresee interbank rate dropping below the double-digit this week on anticipation of budgetary disbursal to government agencies.
On the side of the foreign exchange, more dollar supply to Bureau De Change (BDC) by the International Money Transfer Operators this week will help shore up the value of naira.
The foreign reserve on Friday rose to $27.44 billion from $27.38 billion as of January 18, 2017, according to data from the Central Bank of Nigeria (CBN).
Last week, the local currency traded at N497 per dollar until Thursday when it depreciated further, losing by N1 to close at N498 per dollar. This represented 0.20 percent compared with N497 it closed the previous day at the parallel market.
Naira also lost N0.25k or 0.08 percent against the US dollar at the interbank spot foreign exchange market. It closed at N305.50 on Thursday and Friday, as against N305.25k on Wednesday, data from the FMDQ revealed.
The weekly movements in most dated forward contracts at the interbank OTC segment suggests future stability of the naira viz-a-viz the US greenback amid an increase in the foreign exchange reserves – external reserves increased week-on-week by 2.29 percent to $27.38 billion as of Wednesday, January 18.
The 1-month, 3-month, 6-month and 12-month forward contracts were stable at N320.18/USD, N330.537/USD, N346.07/USD and N378/USD, respectively. However, despite the $7.5 million intervention sales by CBN to banks during the week, the spot rate depreciated to N305.50/USD.
“We expect further moderation of the naira/USD exchange rate,” analysts at Cowry Asset Management said.
At the money market segment of the financial market, the interbank lending rate rose to close at 11.5 percent on Friday, up from 7 percent last week as payments for bond and treasury bills purchases drained liquidity from the money market. On Wednesday, Nigeria raised N214.95 billion ($704m) from local currency bonds at its first auction this year, with payment for the bonds due on Friday.
Last week, CBN auctioned treasury bills via primary market, viz: 91-day bills worth N36.786 billion (Stop Rate, SR, fell to 13.89 percent from 14%), 182-day bills worth N39.175 billion (SR fell to 17.25% from 17.50%) and 364-day bills worth N193 billion (SR fell to 18.65% from 18.68%). Also in the secondary market, CBN sold bills worth N208.98, viz: 143-day bills worth N27.97 billion and 297-day bills worth N181.01 billion.
The outflows more than offset inflows from maturing bills via primary market, viz: 91-day bills worth N36.786 billion, 182-day bills worth N39.175 billion and 364-day bills worth N120 billion; in addition to maturing 185-day bills worth N33 billion.
Consequently, interbank rates increased across all the tenor buckets amid liquidity strain – NIBOR for overnight funds, 1month, 3 months and 6 months increased w-o-w to 11.63% (from 9.08%), 17.73 percent (from 16.94%), 19.12% (from 17.91%) and 22.21% (from 21.99%) respectively. Meanwhile, Nigerian Interbank Treasury Bills True Yields (NITTY) fell for most of the maturities amid sell offs – yields on 3 months and 6 months maturities fell to 14.38 percent (from 14.47%) and 18.79 percent (from 19.14%) respectively. However, yield on 1-month rose to 17.03% (from 16.47%).
“We expect interbank rates to moderate on the back of anticipated improvement in financial system liquidity from expected FAAC disbursements,” the analysts said.