Naira to depreciate further as $697m forwards mature this week

The naira depreciated in all the segments of the foreign exchange market last week due to shortage of dollars. The slump is expected to continue this week as the interbank foreign exchange market will experience the maturity of $697 million one-month forwards contract sold by the CBN on Monday June 27th 2016.

Last week the naira depreciated in the interbank spot market by Seven percent to N283.37 per dollar from N282.02 per dollar the previous week.  The depreciation, which was in sharp contrast to the stability of the previous week, was attributed to shortage of supply into the market. This led to excess demand which spilled over to the Bureaux de change (BDC)   and parallel market segment.

As a result, the naira depreciated at the BDC and parallel market segments by 2.9 percent and 3.13 percent to N355 and N363 per dollar respectively. Analysts at Cowry Assets Management Company, a Lagos based investment firm, were of the opinion that the naira depreciate further this week due to the impact of the settlement of the $697 million forwards which would mature this week.

 “This week we anticipate increased upward pressure on the foreign exchange rate as the apex bank prepares to settle its obligations on its 1-month (July 2016) tenor futures contract entered on Monday, 27 June 2016 at the rate of N279 per dollar.

Analysts at Afrinvest however stated, “The fulfilment of this commitment is expected to stoke investors’ confidence in the operations of the interbank market going forward.” Meanwhile, the new foreign exchange rate regime received a major boost last week, with the CBN and Stanbic IBTC sealed a $60 million Naira-Settled Futures at N210 per dollar with 10 months tenor ending on April 26th, 2016. Interbank interest rate hit 22% Interbank interest rates rose to double digits last week closing above 22 percent due to scarcity of funds occasioned by treasury bills sales by the CBN and sale of FGN Bonds by the Debt Management Office (DMO).

Investigations reveal that interest rate on Overnight lending rose by 13.4 percent to 22.8 percent, while interest rate on Colateralised lending or Open Buy Back (OBB) also rose to by 11.8 percent to 20.8 percent.

According to Afrinvest analysts, “Next week, we expect money market rates to remain in the double digits. There is a net T-bills maturity of N128.0bn and a scheduled rollover of the same amount expected next Thursday. We expect the auction to be oversubscribed as investors with unsuccessful bids at Wednesday’s DMO primary market auction redirect their attention to the T-bills auction considering the high stop rates at the previous auction. Thus, we think the Apex Bank may allot more than the offered amount.”