Naira appreciates in forwards market, CBN plans to sell N242bn treasury bills

The naira appreciated in the forwards segment of the foreign exchange market indicating rising confidence buoyed by recent increases in the nation’s foreign reserves.

Data from the Financial Dealers Market Quote (FMDQ) show that the naira exchange rate for one month forward contracts dropped to N315.34 on Friday from N320.18 per dollar the previous week, indicating N4.84 or 1.5 percent appreciation for the naira.

Similarly, exchange rate for two months forward contracts dropped to N323.27 from N330.54 per dollar, indicating N7.27 or 2.20 per cent appreciation for the naira. The naira also appreciated by N14.57 or 4.20 percent for three months forward contracts, as the exchange rate dropped to N331.53 from N346.1 per dollar.

The naira recorded its highest appreciation for six months forward contracts, appreciating by N29 or 7.67 per cent, as the exchange rate dropped to N323.27 from N378 per dollar. It also recorded marginal appreciation of 0.08 percent for spot transactions where the exchange rate edged down to N305.25 per dollar from N305.5 per dollar in the previous week.

According to analysts at Cowry Assets Management Limited, the naira appreciation in the forwards market suggests future stability in the foreign exchange market amidst rising foreign reserves.

The nation’s foreign reserves have been an upward trajectory since October 18th 2016 courtesy of increase in crude oil prices inspired by the production cut deal agreed by OPEC members.

According to data by the Central Bank of Nigeria (CBN), the foreign reserves rose by $5 billion from $23.96 billion on October 18th 2016 to $28.9 billion on Tuesday January 24th 2017.

Meanwhile the CBN will this week sell treasury bills worth N242.4 billion in continuation of liquidity mop up operations. The treasury bills comprise N45.18 billion worth of 91 day bills, N80 billion worth of 182 days bills, and N117.2 billion worth of 364 days bills.

This of course is to moderate the liquidity effect of the inflow of N218.36 billion through payment for matured treasury bills this week. The matured treasury bills comprise N21.15 billion worth of 91 days bills, N80 billion worth of 182 days bills, N117.2 billion worth of 364 bills and N72.9 billion worth of 185 days bills.

The combined effect of these developments is expected to moderate down cost of funds in the interbank money market.

Last week cost of funds rose marginally despite inflow of N400 billion from statutory allocation funds. The impact of the inflow was subdued by outflows through treasury bills and FGN bonds auction during the week. Although interest rate on Overnight borrowing dropped  to 5.5 per cent last week from 11.63 percent the previous week, the interest rate for I month, 3 month and 6 month borrowing rose respectively to 17.86 per cent  (from 17.73), 19.50 percent (from 19.12) and 23.14 percent (from 22.21).