A Review of the Nigerian Energy Industry

$400m intervention bolsters Naira

12 January 2014, Lagos – The Central Bank of Nigeria (CBN) offered a total of $400 million to currency dealers at the Retail Dutch Auction System (RDAS) last week.

Last week’s forex sale by the regulator was the first bi-weekly auction at the official market this year.

NairaHowever, while the CBN sold $178.94 million on Monday, $450.56 million was sold on Wednesday at the marginal rate of N$168 to a dollar.

Twenty one banks participated in the auction on Wednesday compared to 9 banks on Monday, which explained the spike in dollar sales on Wednesday.

Although activity level rose during the week as demand heightened following sustained losses in the stock market occasioned by portfolio reversals, dollar sales by oil companies and the central bank’s intervention moderated the demand-supply mismatch.

At the interbank market, the naira strengthened to N180.25 to a dollar. The naira also appreciated marginally at the parallel market as it climbed to N190.50 to a dollar, just as the currency it maintained its value of N189 to a dollar at the BDC
Analysts at Afrinvest West Africa Limited argued that “consequent on the bleak macro outlook following the precipitous decline in oil prices, we expect the naira to continue to trade lower than the CBN upper band target of N176/$1.

“Readings from the market suggest traders now consider the naira fair value to be in the range of N180-N190/$1.

“However, following the marginal gains in the foreign reserve since the CBN began to clamp down on speculative trading, we also anticipate that the apex bank will move to consolidate on these gains by introducing regulatory policies targeted at speculative activities or further devalue the naira to remove speculative arbitrage if the naira continues significantly below its target bans.”

On the other hand, analysts at Cowry Asset Management Limited anticipates that at the interbank market this week, the recent CBN policy mandating banks to maintain a zero balance on their foreign exchange trading position would further stifle dollar supply and create more pressure on the naira particularly at the parallel market.

Bond Market
In contrast to the lull in trading activities witnessed in the FGN Bond market the preceding week, the bond market picked up moderately last  week, especially in the short and medium term trading benchmarks.

Average yield declined by 0.1 per cent week-on-week to 14.7 per cent.
The market opened the week broadly bullish, as yields declined across all maturities, especially at the short end of the curve. The trend was sustained up till mid-week when prices started to decline and yields rose in short to medium term notes to paring the gains witnessed in the short term notes.

Experts attributed this to the release of the bond issuance calendar during the week, which forced investors to exit positions to free up liquidity for the bond re-openings scheduled this week.

“We anticipate that the bond auction will come at attractive yields to reward investors for the increased foreign exchange risk exposures in the Nigerian market.
“We expect secondary market trading to open bearish as investors continue to reposition ahead of the bond auction on Wednesday,” Afrinvest stated.

Interbank Market
The market opened the New Year highly liquid with an opening balance of N424.9 billion on the back of the N183.7 billion open market operations (OMO) inflow and softer outflow.

Therefore, the overnight, one-month, 3-month and 6-month tenors moderated respectively to 9.91 per cent (from 10.96%), 13.81 per cent (from 14.52%), 14.25 per cent (from 15.24%), and 15.70 per cent (from 15.92%).

This week, treasury bills worth N196.32 billion would mature.

– This Day

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