CBN sustains naira’s defence, raises intervention efforts

THE Central Bank of Nigeria, last week, sustained its defense for the nation’s currency at the Retail Dutch Auction System (RDAS), though it offered less than the previous week’s provision at the platform.

  Besides, the apex bank also conducted ad-hoc interventions at the interbank market to quell imminent rebound at the segment where the currency volatility is mostly concentrated.

  Specifically, CBN sold $249.9 million and $249.4 million at the marginal bid of N169/$ at RDAS auctions conducted on Monday and Wednesday respectively, perhaps the first time it could officially sell above the N168/$ post devaluation. 

  It would be recalled that the apex bank, in a circular dated January 12, 2015, reviewed its position on banks’ daily foreign currency trading position, raising the limit from 0.0 per cent of shareholders fund to 0.1 per cent.

  It also changed the number of hours dollars bought at the interbank market can remain with the authorized dealers, increasing it to 72 hours from 48 hours. 

  The policy directive reversal, which was in a bid to improve dollar liquidity at the interbank market however, did not have an immediate positive effect, as the local unit closed N1.50 weaker on Tuesday to berth at N183.60/$ at the segment. 

  According to Afrinvest Securities Limited’s report, the pressure on the local unit however, moderated the following day as the naira gained 30 kobo, majorly due to dollar sales by autonomous sources- multinationals, at the interbank market to fulfill their domestic naira obligations.

  The demand pressure resumed afresh on Thursday as ad-hoc dollar supply intervention conducted by the CBN failed to abate the pressure on the naira, forcing it to close at N186.10/$, representing a two-week low. 

  Week-on-week, the naira depreciated N2 against the dollar to close at N185.10/$ at the interbank segment.

  “We expect the naira volatility at the interbank to persist in the interim and remain outside the CBN upper target band of N176/$. The bleak macroeconomic picture, capital inflow reversals and politicking ahead of the February general elections will continue to constitute headwinds to exchange rate stability. 

  “The waning external reserve and the lower potential for accretion in the near term due to falling oil prices continue to hamper the CBN’s ability to defend the naira,” the securities company said. 

  Just as in the previous week, the interbank money market opened the week highly liquid with an opening balance of N711.9 billion. 

  Despite banks’ need to fund their accounts in view of the Wednesday auction, rates slipped 46 basis points (bps) and 21 bps at the Open Buy Back and Overnight Call market on Monday to 8.5 per cent and 9.4 per cent respectively. 

  On Tuesday, Open Market Operations’ sales debit, totaling N161.9 billion pegged liquidity balance at N450.8 billion, but reimbursement from the unsuccessful bids at the Monday auction, eased rates further to 8.1 per cent and 8.8 percent respectively.

  However, rates inched higher on Thursday due to required provisions made by dealers for today’s RDAS auction, though on Friday, the OBB and Overnight rates shed 54 bps and 46 bps.

  Analysts at the securities company said the OBB and Overnight rates may remain within the single digit region this week due to the prevailing level of liquidity in the market.

The National Bureau of Statistics (NBS) reported last week that inflation rate averaged 8.1 per cent in 2014, while the headline inflation rate rose 10 bps year-on-year to eight per cent in December from 7.9 per cent in November 2014. 

  Although growth in the Core index moderated to 6.2 per cent in December 2014- a 10bps decline, the faster growth in the Food index which rose 10bps year-on-year to 9.2 per cent delivered the marginal increase in the Headline Index. 

  “The moderation in the three major inflation indices- Headline Index, Core Index and the Food Index in 2014 will be greeted with great cheers within the fiscal and monetary circles. 

  “Nevertheless, the headwinds to consumer prices resulting from the precipitous decline in crude oil prices, which triggered pressure on naira and depletion of the external reserve will keep monetary authorities on their toes. 

  “We do not expect a deviation from the CBN’s tight monetary policy stance as the Monetary Policy Committee (MPC) convenes today for the first time in 2015. We expect the MPC to maintain status quo on all policy rates as the CBN observes how the banks and economy are assimilating the effects of the policy changes at the last meeting,” the analysts added.