By Chinwendu Obienyi

Despite an increase in Nigeria’s foreign exchange reserves and the Central Bank of Nigeria’s (CBN) intervention, the value of the naira at the close of last week’s transactions depreciated ahead of the Monetary Policy Committee (MPC) meeting, which is set to hold this week.

According to reports, the apex bank intervened three times during the week, selling approximately $211 million in total. The intervention helped boost market turnover, which increased by 33.6 per cent week-to-date, reaching $1.14 billion, with exchange rates ranging between N1,301 and N1,593/$1.

However, the naira’s depreciation was evident across various forward contracts, with the 1-month, 3-month, 6-month, and 1-year contracts all seeing declines. At the close of transactions, the value of the naira dropped to N1,497.33/$1, marking a 2.1 per cent decline week-on-week (w/w) at the Nigerian Autonomous Foreign Exchange Market (NAFEM) amid the nation’s gross reserves improving by $195.01 million to reach $32.64 million.

Similarly, at the parallel market, the naira faltered by 3.4 per cent w/w to close at N1,475/$1. Furthermore, sentiments in the FGN bonds secondary market turned bearish, as investors reacted to the release of the April 2024 data.

Consequently, the average yield advanced by 7 basis points (bps) to 18.7 per cent. Across the benchmark curve, the average yield expanded at the short (+4bps), mid (+10bps) and long (+1bp) segments due to sell offs of the MAR-2025 (+11bps), APR-2032 (+37bps) and APR-2049 (+16bps) bonds, respectively.

At this month’s bond PMA, the DMO offered instruments worth N450.00 billion to investors through re-openings of the 19.30 per cent FGN APR 2029 (Bid-to-offer: 0.7x; Stop rate: 19.29 per cent) and 18.50 per cent FGN FEB 2031 (Bid-to-offer: 0.5x; Stop rate: 19.74 per cent) bonds, and issuance of the new FGN MAY 2033 (Bid-to-offer: 2.5x; Stop rate: 19.89 per cent) bond.

The auction was oversubscribed as the total subscription level settled at NGN551.32 billion (bid-to-offer: 1.2x), with the DMO allotting bonds worth NGN682.07 billion (non-competitive allotments: NGN301.30 billion) across the three instruments, resulting in a bid-to-cover ratio of 0.8x.

With Nigeria’s inflation climbing for the 16th consecutive month, economic experts are increasingly concerned of the impact it would have on the country’s growth prospects in the near term.

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Data obtained from the National Bureau of Statistics (NBS) on Wednesday revealed that the inflation rate for the month of April hit 33.7 per cent from 33.2 per cent recorded in March, representing a 49 basis points increase.

However, on a month-on-month (m/m) basis, it eased further by 73 basis points (bps) to 2.29 per cent against 3.02 per cent.

Speaking on the development, analysts noted that although market liquidity improved compared to the previous week, it may be insufficient to trigger a significant appreciation when transactions resume today.

Analysts at Cordros Research, said, “Market liquidity showed improvement from the previous week, driven by the increased FX supply from the CBN to banks and a slight resurgence in interest from Foreign Portfolio Investors (FPIs). This helped reduce some of the naira’s volatility.

Looking ahead, it is anticipated that FX liquidity will continue to improve with additional inflows from FPIs and ongoing CBN interventions. However, this improvement in liquidity may not be enough to cause a significant appreciation of the naira in the near term.

We note the wane in demand in the FGN bonds secondary market triggered by the accelerating inflation print is expected to remain in the short term, more so, as the CBN governor hinted at the likelihood of a further rate hike at the next monetary policy meeting.

Thus, we think participants in the space will continue to reprice yields higher amid the tight control of the MPC on money supply into the economy. Over the medium term, we expect yields to remain elevated, driven by the anticipated monetary policy administration globally and domestically and sustained imbalance in the demand and supply dynamics”.

For their part, analysts at Afrinvest, said, “Looking ahead, we anticipate extended pressure on the Naira as FX supply-demand mismatch persists”.


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