…Market price out uncertainty as Interbank trading begins today
MON 20 JUNE 2016 The Naira run of gains as expected, continued this week as market angrily price out uncertainty following last week’s brave Central Bank of Nigeria, CBN, policy direction change, which saw a market driven flexible single market exchange rate put in place, a major shift in goal post by the apex bank.
At both the parallel and interbank market the Naira traded as expected by analysts-slumping at the interbank market and firming at the parallel market. The parallel (black market) traders were offering the Naira at between N325 and N342 to the dollar Monday, on the first day of the interbank trading. It slumped at the interbank market-trading at N255 to the dollar, a 23 % slump but at the rate at which analysts had projected the currency early this year before it went on a free fall.
“Speculation is now out of the window and real demand and supply is beginning to determine the real exchange rate and I expect the equilibrium will be found well below the level the parallel is currently sitting,” one analyst said eralier Monday.
Many expect the development in the FX market today to dampen down the blow back on the stock market which has seen a run of bad luck in the past one year and left regulators struggling to stem the damage.
Last week, the Naira gained about 3 % in the parallel market as confidence returned following the announcement of the flexible exchange rule and many now expect that as the InterBank Trading begins today, that would potentially reverse the volatility that has trailed the market in the past 18 months. At the derivatives market segment, FX forwards showed general appreciation in most dated contracts – the spot rate, 1 month, 3 months and 6 months dated contracts appreciated by 0.72 percent, 0.36 percent, 1.52 percent and 2.34 percent at N197.50/$, N200.73/$, N203.93/$ and N209.09/$, respectively.
Our investigation shows that everybody is hanging on and waiting for the right time to play. Those who had money horded abroad are frantically making calls to sell and cash out but nobody is listening to them now. They are all waiting for Naira to find its appropriate effective rate before buying.
Analysts say they expect the Naira to eventually trade around N250 when the market stabilizes but advise a bullish adjustment of the rate to allow the naira enough headroom to appreciate and regain confidence.
At the money market last week, the CBN auctioned treasury bills worth N341.44 billion, viz: 91-day bills worth N48.10 billion; 182-day bills worth N29 billion, and 364-day bills worth N152.34 billion.
The respective marginal rates increased to 8 percent (from 7.99%); 9.81 percent (from 9.05%), and 11.99 percent (from 11.10%), respectively. An additional N112 billion was sold via primary market. The outflows were partly offset by inflows in matured treasury bills worth N314.34 billion. Also, standing lending facility (SLF) increased by 173.25 percent to N281.15 billion, as deficit units accessed the official window, while standing deposit facility (SDF) declined by 3.47 percent to N594.75 billion. NIBOR for overnight funds and 1 month fell to 2.15 percent (from 4.33%) and 8.06 percent (from 9.04%), respectively.
However, 3 months and 6 months increased to 12.34 percent (from 11.87%) and 13.89 percent (from 13.25%). Meanwhile, yields on the Nigerian Interbank True Treasury Bills Yield mostly increased amid financial system liquidity strain – yields on the 3 months, 6 months and 12 months maturities increased to 8.34 percent (from 7.42%), 9.82 percent (from 9.08%) and 15.23 percent (from 11.83%), respectively.
“This week, treasury bills worth N107.46 billion, viz: 91-day bills worth N18.12 billion; 182-day bills worth N39.34 billion, and 364-day bills worth N50 billion: will mature on Thursday, 23 June
