Reserves near $25b low as demand pressure persists

Exchange, interbank lending rates high over shortages

The nation’s reserves have fallen to $25.16 billion over unending demand pressure and challenges of accretion due to drop in major foreign exchange earners, particularly crude oil.

Just last week, the foreign exchange reserves lost about $123 million, attributed to interventions in the interbank market by the Central Bank of Nigeria (CBN), aimed at supporting the local currency.

This was in contrast with about $93 million the reserves lost the previous week and also reflected reactions over the flurry of negative records recently released by the Nigerian Bureau of Statistics.

CBN has emerged the major player in the interbank market since the inception of the new regime, except once recently, when foreign investors staked about $270 million, while others still remain cautious over the country’s developments.

The apex bank has modified its rules recently in efforts to attract foreign investors, including those of investments in government securities.

The expected convergence of the interbank and parallel markets exchange rates suffered another setback last week as the liquidity crisis in the currency market persists, pushing both rates apart.

At the parallel market, the local unit traded between N423 and N425/$ throughout the week, while activity level at the interbank market waned, compared to the previous week.

At the interbank, the naira/dollar spot rate traded at a tight band of between N314.20 and N314.92/$ till midweek, before appreciating to N308.00/$ on Thursday.

The apex bank intervened with dollar supply to the interbank market on most trading days of last week, as autonomous suppliers remain scarce, a trader said.

But analyst at Afrinvest Securities Limited said activity level at the interbank this week will “stay soft on the back of the general holidays declared by the Federal Government. We also opine that the apex bank may continue to intervene at the interbank in the interim in order to clear up rising foreign exchange demands.”

Meanwhile, the interbank lending rates fell below 17 per cent at the weekend on improved liquidity, after rising to more than 35 per cent in the middle of the week.

Specifically, the Open Buy Back (OBB) and Overnight rates eased to 15.8 per cent and 16.4 per cent respectively, after system liquidity further improved on Friday on the back of Open Market Operation (OMO) maturity.

Throughout the week, performance in the money market was fairly bullish during the week, as rates remained in the double-digit band and trended higher on average.

Aggregate system liquidity opened last week at about N93 billion from N118.7 billion it ended the previous weekend, while CBN set off the week with a mop up of N107 billion via OMO.

Consequently, OBB and Overnight rates settled at 20.2 per cent and 22.4 per cent respectively, but in the absence of a major inflow into the system, the rates spiked to 27.3 per cent and 29.1 per cent on Tuesday, and 33.2 per cent and 35.5 per cent on Wednesday respectively.

However, it took a net effect of N293 billion OMO maturity and N139 billion OMO mop up on Thursday to achieve a reduced rates to 17 per cent and 18.7 per cent for OBB and Overnight respectively.

Trading activities in the T-bills market opened the week on a bearish note, given lower system liquidity, as average bills’ rates rose from 16.1 per cent on Monday to 16.3 per cent on Tuesday.

The trend was sustained during the week, as it reached 17 per cent with investors showing preference for OMO auction.