Pressure on naira to recede as oil price improves

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THE pressure on the local currency is expected to reduce and stability maintained at the foreign exchange market this week following noticeable improvement in the foreign reserve and crude oil prices.

The nation’s foreign reserve rose to $27.88 billion as at March 10, 2016, representing 0.33 percent compared to $27.78 billion as at February 18, 2016, data on the Central Bank of Nigeria (CBN) website revealed.

Also the price of Brent crude rose by $7.33 per barrel or 22.11 percent to $40.49 on Friday as against $33.16 per barrel on February 17, 2016.

“This week, we anticipate stability in the foreign exchange markets on the back of recent appreciation in the price of crude oil in the international market and the consequent accretion in the country’s external reserves”, analysts at Cowry Asset Management said.

Last week, week, the Naira/Dollar exchange rate at the official segments of the market remained tightly held at N197.00/US$1.00 and N199.10/US$1.00 respectively.

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A report by Afrinvest Securities limited show that foreign exchange rate in the Bureau De Change (BDC) market segment recorded a considerable amount of activity, starting last week at N330.00/US$1.00 on Monday. FX rate at the BDC appreciated 3.8 percent on Tuesday, settling at N318.00/US$1.00 but depreciated back toN320.00/US$1.00 on Wednesday and Thursday respectively.

Ayodeji Ebo, head, investment research, Afrinvest noted that over the weekend, the President weighed in on the controversy trailing the FX allocation for foreign studies and related demand for FX, maintaining that the country cannot afford it. This is coming after the CBN clarified its position on the matter that it has not stopped the sales of FX for students studying abroad. Notwithstanding the above, FX rates across segments maintained relative stability W-o-W, as the local unit closed at N322.00/US$1.00 in the parallel market on Friday.

At the money market last week, the CBN auctioned Open Market Operations (OMO) worth N160.0bn which reduced liquidity from the financial system, consequently, OBB and O/N rates rose 0.8% from the previous trading session (last week Friday) to close at 4.0% and 4.4% respectively.

Similarly, rates inched higher on Tuesday as system liquidity remained low as refund for unfulfilled bids at last week’s CBN FX intervention auction was offset by Deposit Money Bank’s (DMB) provisioning for this week’s auction.