CBN’s Interventions To Prevent Sharp Naira Depreciation As Market Demand Pressure Rises

The naira depreciated by 3.6 per cent to N1,556.63/USD at the Nigerian Foreign Exchange Market (NFEM)- the official market despite the CBN’s intervention — selling $59.00 million to authorised dealers.

The auctioned funds however, helped limit further weakening amid persistent excess demand over supply.

Analysts at Cordros Securities said the FX reserves level declined by $115.18 million week-on-week to $38.34 billion, marking the 8th consecutive week of decline.

In the forwards market, the naira rates decreased across the 1-month (-0.7 per cent to N1,549.59/$, 3-month (-0.7 per cent to N1,618.82/$, 6-month (-0.6 per cent to N1,721.87/$ and 1-year (-0.3 per cent to N1,905.92/$) contracts.

“Despite the recent rise in market demand pressure, we expect naira volatility to remain contained, supported by strong market liquidity from improved autonomous inflows. Additionally, we anticipate the CBN will continue its interventions during periods of heightened volatility, helping to prevent a sharp depreciation of the naira,” the analysts said.

Meanwhile, the Treasury bills secondary market remained bullish last week as market participants sought to fill unmet bids from the Nigeria Treasury Bill (NTB) Primary Market Auction (PMA).

“We expect yields to further decline next week underpinned by the continued downward repricing of yields and Investors looking to fill unmet bids at next week’s market auction. The DMO is scheduled to conduct an NTB PMA next Wednesday, with N550.00 billion worth of maturities on offer,” the analysts said.

T-Bills are short-term debt securities issued by the government to make up for budget deficit and fund projects. In Nigeria, T-Bills are issued by the CBN on behalf of the federal government.

Accordingly, the average yield declined by 41 basis points (bps) to 20.8 per cent. Across the market segments, average yield declined by 73bps and 9bps to 19.2 per cent and 22.4 per cent, in the NTB and OMO segments, respectively.

“At Wednesday’s NTB auction, the Debt Management Office (DMO) offered bills worth N650.00 billion – N70.00 billion for the 91Day, N80.00 billion for the 182 Day, and N500.00 billion for the 364 Day bills. Subscription level settled lower at N1.92 trillion (previous auction: N2.41 trillion), with a bid-to-offer ratio of three times,” the report said.

The auction closed with the DMO allotting N830.44 billion – N61.52 billion for the 91 Day, N50.95 billion for the 182 Day, and N717.97 billion for the 364 Day papers – at respective stop rates of 17 per cent (unchanged), 17.75 per cent and 17.82 per cent.

Also, the CBN conducted an Open Market Operation auction last Thursday, offering instruments worth N600.00 billion – N300.00 billion for the 355 Day and N300.00 billion for the 362 Day – to investors.

“Total subscription settled at NGN1.88 trillion (bid-to-offer: 3.1x), with the CBN allotting N1.68 trillion – N725.70 billion for the 355 Day and N951.20 billion for the 362 Day bills at a respective stop rates of 19.19 per cent and 19.45 per cent.