Foreign reserves depletion, oil price fall threaten naira stability


THE pressure on the local currency, naira which had received some breath following slight improvement in foreign reserve and oil prices, may resurface as the development bounces back, National Daily findings revealed.

The foreign reserve which improved to $27.871 billion as at March 24, 2016 has declined further to $27.864 as at March 31, 2016 according to the data on the website of the Central Bank of Nigeria (CBN).

Also the price of Brent crude which rose to over $40 per barrel last week has declined to $38.63 per barrel as at April 01, 2016. The foreign exchange market has for over three weeks witnessed exchange rate stability following recent contractionary monetary policy announcements.

A report by Cowry Asset Management limited indicated that the Nigerian Naira appreciated against the U.S. dollar in all market segments. The local currency traded stable at the official clearing rate, interbank market rate, Bureaux De Change rate and parallel market rate closing at NGN197/USD, NGN199.10/USD, NGN320/USD and NGN323/USD respectively.

The stability was in spite of weekly decline in global crude oil prices witnessed in the review week Opec’s reference basket price decreased w-o-w by 1.80% to USD34.33 a barrel while ICE Brent crude oil price softened w-o-w by 2.18% to USD39.57 a barrel as at Thursday.

Available data from Central Bank revealed Nigeria’s forex reserves fell w-o-w by 0.06% to USD27.86 billion as at Tuesday. Meanwhile, interbank forwards market indicated depreciation for most tenors save for the spot price which appreciated w-o-w by 0.22 percent to NGN198.11/USD.

“This week, we anticipate that the recent waning in external reserves may heighten currency risk to further add upward pressure on the NGN/USD exchange rate”, analysts at Cowry Asset said.

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At the money market this week, the CBN will auction treasury bills worth N243.89 billion; viz: 91-day bills worth N55.40 billion; 182-day bills worth N25 billion; 182-day bills worth N33.49 billion and 364-day bills worth N130.00 billion. As a result of the expected outflows via auctions, the analysts anticipate pressure on liquidity and resultant increase in interbank rates.

Last week the Nigerian Interbank Offered Rates initially increased amid strain in liquidity which necessitated a 3,727% w-o-w increase in Standing Lending Facility to N458.11 billion following recent increase in CRR to 22.5% (from 20%).

However, towards the end of the review week, interbank rates decreased amid system inflows the interbank market got inflows worth N179.05 billion in matured 266-day treasury bills via OMO. NIBOR for overnight funds, 1 month, 3 months and 6 months mellowed w-o-w to 4.46% (from 13.63%), 9.11% (from 10.28%), 11.01% (from 11.89%) and 12.38% (from 13%) respectively. Elsewhere, yields on the Nigerian Interbank True Treasury bills rose for all maturities amid renewed sell pressure yields on the 1 month, 3 months, 6 months and 12 months tenors rose to 6.99% (from 5.80%), 8.08% (from 7.05%) and 9.21% from 8%.