SAT, 24 OCT, 2020-theGBJournal-Nigeria’s FX reserves increased by USD1.77 million w/w to USD35.67 billion, as inflows offset outflows for CBN’s interventions across the various FX windows.
Across the windows, the naira was marginally lower, but closed flat at NGN386.00 against the US dollar at the I&E window, while it weakened by 0.2% to NGN463.00/USD in the parallel market. In the Forwards market, the naira appreciated across the 3-month (+0.2% to NGN387.61/USD), 6-month (+0.6% to NGN389.09/USD) and 1-year (+1.2% to NGN395.39/USD) contracts, while the 1-month (NGN386.49/USD) was flat.
Despite the CBN’s stronger commitment towards exchange rate unification, Cordros Research analysts say they still see legroom for the currency to depreciate further over the medium-to-long term – at least towards its REER derived fair value.
Their assumption is based on the widening current account position, currency mispricing, which could induce speculative attacks on the naira, and the resumption of FX sales to the BDC segment of the market which should place an additional layer of pressure on the reserves.
In the money market, the overnight (OVN) rate increased by 7.75 ppts w/w, to 9.8%. The OVN rate was depressed for most of the week, as system liquidity was boosted by inflows from OMO maturities (NGN296.03 billion), FGN bond coupon payments (NGN32.67 billion) and FX retail refunds. However, funding pressures from CRR debits, FGN bond (NGN30.00 billion), OMO (NGN100.00 billion) and FX auctions debits offset the impact of the inflows and triggered the eventual expansion in the rate.
With another liquidity influx expected next week from OMO maturities (NGN336.09 billion) and FGN bond coupon payments (NGN160.32 billion), Cordros say they expect liquidity in the system to remain healthy, and lead to a contraction in the OVN rate.
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