19 June 2017

Nigeria: N261b Forex, Omo Auctions Stabilise Exchange Rate

- BDCs, investors, parallel market rates near convergence

A mix of $831.5 million foreign exchange (about N254 billion at N305.75/$) and Open Market Operation (OMO) auctions by the Central Bank of Nigeria (CBN) last week, reduced the quantity of naira in circulation and stabilised exchange rate across segments through the weekend.

It however, unsettled bankers as they jostled to grab every available naira in the money market to offset their obligations for participating in both auctions, leading to earlier spike in the lending rates among banks, before its moderation.

The first two days of the week were full of activities as the monetary authority offered $418 million and $13.5 million respectively, while on the other hand, it intervened through OMO, mopping up N5.3 billion and N2.1 billion in each day.

With other monetary policy actions in the week like the maturing bills and rollover at 16 per cent, it also mopped up N86.8 billion, keeping interbank lending rates at 15.2% and 15.7% for Open Buy Back and Overnight instruments respectively.

This was followed by N200 billion roll-over on Friday, in a 181-day special Treasury bill auction at 16 per cent, according to traders. Consequently, parallel market exchange rate remained stable at N367 per dollar throughout, while the recently inaugurated Investors and Exporters window traded near convergence with parallel market at N371 per dollar.

The Managing Director, Stanbic IBTC Bank, Dr. Demola Shogunle, while speaking at the 333rd meeting of the Bankers Committee, affirmed that Investors and Exporters window has recorded $2.3 billion transactions, with CBN contributing less than 30 per cent of the sum exchanged.

On the other hand, the Acting Director, Corporate Communications, CBN, Isaac Okorafor, assured that the interventions will continue to guarantee stability in the market and ensure availability to individuals and business concerns.

A poll of analysts by The Guardian, showed that investors' confidence in the Nigerian market is high, and can be seen in the increase in the volume of transactions in the Investors' & Exporters segment and activities in the stock market.

The Managing Director, Rand Merchant Bank Nigeria, Michael Larbie, also corroborated the claim of return of confidence, saying that the oversubscriptions in both UBA and Zenith banks' Eurobond offerings are indications that international investors are betting seriously on the economy.

Analysts at Afrinvest Securities Limited also admitted that the foreign exchange market has continued to see improvements in liquidity and rates convergence since the launch of the NAFEX window, and sustained CBN interventions in the interbank market via Wholesale and Retail SMIS, which have buoyed confidence in the economy and financial markets.

"We expect the stability in the FX market to be sustained in the short to medium term as the CBN continues its intervention in the spot and forward markets as well as the improvement in the NAFEX window," they said

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