Reserves down by $163m, naira stable at parallel market

Operators expect budget disbursement this week, lending remains high
The gross foreign exchange reserves of the country plummeted by $163 million in one week, amid the ongoing currency deal with China, which is expected to lessen the pressure on the Naira exchange rate, due to dollar demand for import related businesses.

The reserves had stood at $27.47 billion one week earlier, but slid to $27.31 billion currently, which understandably, is the outcome of several market interventions by the apex bank to defend the Naira, as well as provide foreign exchange for manufacturing-related raw materials.

Meanwhile, speculative pressures may have remained relatively passive in the foreign exchange market, as exchange rates across segments maintained a relative stability in almost all the trading days of the week, although the wide spread between the official and parallel market rates remains.

While the official Naira/Dollar rate at the official segment stayed unchanged at N197/$, the interbank rate remained at N199.50/$ and the parallel market maintained its exchange profile at N322/$ from the beginning of the week to Thursday, when the Naira appreciated by N2 to N320/$.

Already, market sentiments have swung in favour of the naira, as the expectations of relative calmness in the foreign exchange market have been expressed by analysts.

“Although the comprehensive details of the Yuan/Naira currency deal remains unavailable, we believe the completion of the transaction has the potential of reducing the dollar demand pressure especially for imports from China. This is likely to rein in speculative pressures in the foreign exchange market in the interim,” analysts at Afrinvest Securities Limited, said.

However, indications have shown that the fall in the foreign exchange reserves’ profile was moderate, compared to previous periods, as it recorded an average of $23.3 million per day.

Within the five major interventions in the period, it depleted by about $21 million, $5 million, $77 million, $27 million and $33 million respectively.

Meanwhile, there are projections that the interbank lending rates would crash this week, as the financial market expects the long anticipated budget disbursement to hit the system.

Since the return of the monetary tightening policy of the Central Bank of Nigeria (CBN), which took off at the last Monetary Policy Committee meeting in March, market rates and instruments have responded accordingly in upward trend.

Specifically, the Open Buy Back (OBB) and Overnight interbank rates, which started the week at four per cent and 4.6 per cent respectively, had ended the week higher at five per cent apiece on the back of sustained low liquidity in the system.

On average, the rising interbank rate recorded for the second consecutive week six per cent, as monetary authorities sold a total of N167.51 billion worth of debts, with maturities ranging from three months to one year.

On Tuesday, the interbank lending rates had risen by 2.8 per cent and 1.8 per cent to 5.8 per cent and 6.3 per cent as system liquidity further reduced on the back of banks’ provisioning for the foreign exchange auction.