A Review of the Nigerian Energy Industry

Naira defies Buhari’s post-election bounce at interbank

Naira appreciates.
Naira appreciates.

*Sustains appreciation in parallel market

04 April 2015, Lagos – As Nigerian stocks and bonds surged after Muhammadu Buhari won last weekend’s presidential election, the naira has barely budged at the interbank segment of the forex market.

However, findings showed that the naira climbed further at the parallel market as it traded between N203 and N205 to a dollar at some parallel market points in Lagos.

The nation’s currency has traded at N197 to a dollar in the past few days and has remained anchored even as stocks jumped the most in five years and bond yields plunged to four-month lows. The currency faces the prospect of a sell-off when the central bank of Africa’s biggest oil producer removes trading restrictions imposed last year to reduce volatility, a report by Bloomberg stated.

“If you buy local bonds now you have to factor in how much the currency will move,”a money manager at M&G Limited in London, which oversees about $1 billion of emerging-market assets, Claudia Calich told Bloomberg.
“It’s a tricky proposition.”

The naira had slumped 18 per cent against the dollar as oil prices collapsed by almost half since June, prompting the Abuja-based regulator to lower banks’ trading limits and introduce a new dealing system in February that prevents lenders from buying dollars on the interbank market without matching orders from customers needing to import goods.

The central bank also sold dollars to support the naira, cutting foreign-exchange reserves to $29.8 billion, the lowest in a decade, according to HSBC Holdings Plc. Those measures have left the currency overvalued, according to investors including M&G, BlackRock Inc. and Investec Asset Management.

“One of the first big challenges the new government’s going to have to face is what on earth to do with the naira,” Samuel Vecht, who oversees $2.7 billion in five emerging-frontier-market funds at BlackRock, said.

“Steps have to be taken to ensure reserves don’t keep falling.”
Buhari’s win over President Goodluck Jonathan marked Nigeria’s first democratic transition of power from one party to another since independence from Britain in 1960.

Nigerian assets mostly soared on Wednesday as Jonathan’s concession to Buhari, who will be sworn in on May 29, suggested the transition will be smooth. Stocks climbed 8.3 percent, the most among 93 global primary indexes tracked by Bloomberg. They gained another 3.4 percent on Thursday, reversing losses for the year, having been down 20 per cent by February 13.

While naira forward contracts, traded offshore and exempt from the central bank’s restrictions, also rallied, they still suggested the currency’s depreciation is far from over. Naira six-month non-deliverable forwards fell 2.8 per cent to N233.50 against the dollar, the lowest since January

The naira’s current interbank value is appropriate and the discrepancy between that and the parallel rate isn’t an indication that it’s under pressure, the CBN Governor, Mr. Godwin Emefiele had said at the last Monetary Policy Committee meeting on March 23-24.

The regulator may end the so-called order-based trading system introduced in February now that elections are over, according to the Lagos-based Financial Markets Dealers Association, an industry body.

“As it is now, the market doesn’t know whether it’s going to start the normal two-way quotes it was used to,” the President of the FMDA, David Adepoju said.
*Obinna Chima with Agency report – Thisday

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