11 September 2017

Nigeria: CBN Defends Naira With $1.5 Bn in August

Lagos — In a move to bridge the gap between official market and parallel market rates, the Central Bank of Nigeria (CBN) has injected estimated $1.5 billion into foreign exchange market in August this year.

Cordros in its monthly report said CBN injection in August increased by 105.8 per cent in the month of August, against $727.5 million in July.

The report said, CBN's total turnover at the Investors & Exporters Foreign Exchange (IEFX) window, increased by 63.04per cent to $3.68 billion, against $2.26 billion in July.

According to Cordros report, the bulk of the disbursement totaling $561 million - dedicated to the clearance of the backlog of matured foreign exchange obligations for raw materials and machineries for manufacturing companies, agricultural chemicals, and airlines - was for Retail Secondary Market Intervention Sales (SMIS), while the balance went to settling wholesale, $500 million.

Other disbursement totaling $235 million went to the Small & Medium Enterprises (SMEs), and invisible, $200 million.

The report stated that increased intervention by the apex bank broadly reflected the steady accretion to the foreign reserves, which rose 3.14 per cent in August to $31.81 billion -- the highest since February 2015.

"During the month, the Naira recorded moderate depreciation across most segments of the foreign exchange market," the report by Cordros capital said.

In the CBN's official window, the Dollar against the Naira spot rate depreciated by 0.26 per cent in August to N305.85.

Thr report states further that "There were mixed reactions in the parallel market during the month, as the Naira gained 1.27 per cent against the Pound Sterling, weakened against the Euro (-2.37per cent), and closed flat against the Dollar, at respective closing rates of N365, N468, and N432, respectively."

At the IEFX window, the Dollar/Naira appreciated by 2.23 per cent in August and has appreciated by 4.62per cent since its commencement in April, to N359.67.

Also, according to the report, "We expect the naira to trade around recent levels in the interbank market, and appreciate further against the Dollar in the parallel and IEFE windows, as interventions by the apex bank, aimed at improving liquidity, persist."

It explained further that overnight money market rate expanded by 267 basis points to 8.42 per cent, compared to last month close of 5.75per cent.

"System liquidity was pressured during the first half of the month, falling to N268.41 billion deficit, versus N196.96 billion surplus at the end of July.

"This resulted from increased liquidity mopping actions of the apex bank via OMO sales totaling N389.15 billion (in addition to a N250 billion special OMO sales to banks), and foreign exchange sales worth $754 million, which subdued inflows from OMO maturity worth N198.47 billion, and caused the overnight rate to expand by 2350 basis points to 29.25per cent, from end-July's 5.25per cent.

"During the second half of the month, NIBOR treaded 2,083 bps southward to 8.42per cent, as system liquidity improved from N268.41 billion deficit to N250.41 billion surplus, owing to sizeable inflows from FAAC and maturing OMO bills valued at N228.70 billion and N364.93 billion respectively, suppressing outflows from foreign exchange and OMO sales worth $742 million and N248 billion respectively," the report by Cordros added.

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