Demand Pressure Weakens Naira

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 The naira depreciated against the United States dollar in most segments of the foreign exchange market last week as demand for the greenback outstripped supply.

The huge demand for the greenback was expected because of preparations for the yuletide celebration.

At the interbank market, the nation’s currency depreciated against the greenback by 83 kobo to close at N159.33 on Friday, compared to the N158.50 to a dollar it attained the preceding Friday.

In the same vein, the naira slipped by 50 kobo at the Bureau De Change (BDC) arm of the market to close at N171 to a dollar, just as it shed N1 at the parallel market to close at N173 to a dollar.

But some financial market analysts attributed the weak performance of the nation’s currency to the move by the United States Federal Reserve to begin tapering its quantitative easing programme from January 2014.

However, the naira appreciated marginally at the Central Bank of Nigeria’s (CBN’s) regulated Retail Dutch Auction System (RDAS) to close at N155.70 to a dollar, from N155.73 to a dollar the preceding week. The central bank offered a total of $800 million to dealers, while it sold $799.96 million.

“This week, we anticipate quietness in the foreign exchange market as both the official market and interbank markets have closed for the year. However, we expect pressure to build up in the parallel market as all outstanding demands will be channeled to this segment of the market,” analysts at Cowry Asset Management Limited stated.

On his part, London-based Economist at CSL Stockbrokers, Alan Cameron said: “Markets should be relieved now that an element of uncertainty around tapering has been removed. I think the Nigerian market will shift its focus to domestic issues including the direction of monetary policy next year and general macro-stability in the run up to elections."

NIBOR Movement
The Nigerian Interbank Offered Rates (NIBOR) moderated for all tenor buckets last week as a result of inflow of funds from the Federation Accounts Allocation Committee (FAAC), matured treasury bills and redeemed government bonds.

Matured treasury bills worth N188.17 hit the financial system last week. This comprised of 91-day bills worth N20.28 billion; 182-day bills worth N35.03 billion; 230-day bills worth N63.51 billion; and 364-day bills worth 69.36 billion), via Primary Market Auction (PMA) and Open Market Operation (OMO).

But the central bank did not auction any treasury bills in the period under review. Thus, the NIBOR for all tenors in the market reduced.

For instance, data from the FMDQ OTC showed that while the Call (Overnight) tenor dropped to 10.79 per cent last Friday, from 12.37 per cent the preceding Friday, the 7-day tenor also fell to 11 per cent from 12.83 per cent.
In the same vein, while the 30-day tenor lowered to 11.54 per cent last Friday, from 13.21 per cent the preceding Friday, the 60-day tenor also closed lower at 11.83 per cent, from 13.46 per cent. Also, the 90-day, 180-day and 365-day tenors all closed lower at 12.08 per cent, 12.42 per cent and 12.71 per cent respectively.

In addition, the FMDQ data also showed that while the Repurchase Agreement (Repo) for Call tenor stood at 10.50 per cent on Friday, the one-month tenor at 11.33 per cent and the three-month tenor at 12.42 per cent
Nonetheless, this week, maturing treasury bills worth N53.38 billion would be injected into the financial system. This would consist of 91 day bills worth N31.84 billion; and 182-day bills worth N21.54 billion.

“We anticipate this boost in liquidity to lead to further moderation of interest rates at the interbank market,” analysts at Cowry Assets predicted.

Bond Market
Following the announcement by the Federal Reserve, fixed income investors’ sentiment was negative last week. This resulted to bearish activities at the Over-the-Counter (OTC) bond market.

Consequently, bond prices declined (and yields increased) week-on-week, for all maturities despite the boost in the liquidity in the system.

The 20-year, 10% FGN JUL 2030 bond dropped by N1.25 (yield jumped to 13.27 per cent from 13.05 per cent); the 10-year, 16.39% FGN JAN 2022 paper dipped by N2.25; the 7-year, 16% FGN JUN 2019 debt slumped N1.49 (yield leaped to 13.14 per cent, from 12.79 per cent); the 5-year, 4% FGN APR 2015 instrument slipped by six kobo (yield rose 13.31 per cent, from 13.14 per cent), while the three-year 13.05% FGN AUG 2016 debt lost 38 kobo to 13.16 per cent.
A report by Cowry Assets also indicated that this week, 7-year, 11.99% FGN DEC 2013 bond worth N10 billion would be retired by the Debt Management Office.
“Against the reduction in the Fed’s monthly bond purchases, we expect to see further erosion in the local bond prices (and increase in yields),” the report added.

The Asset Management Corporation of Nigeria (AMCON) is expected to redeem the N1 trillion series one, two, three and four bonds next Monday.

CBN Governor, Mallam Sanusi Lamido Sanusi at the weekend in Abuja, confirmed the amount was already in the central bank’s possession. Speaking the signing of an agreement between the CBN and AMCON to pave the way for the redemption of AMCON's indebtedness, Sanusi said an additional N1 trillion would be provided by the corporation by October next year to redeem the series five bonds. He said the objective was to ensure that the CBN remained the only creditor to AMCON. Sanusi signed on behalf of the CBN while the Managing Director of AMCON, Mr. Mustafa Chike-Obi signed on behalf of the corporation. He said the deal represented the outcome of bilateral negotiations by both institutions and a major milestone in the resolution of the banking sector crisis which began in 2009. Chike-Obi however told journalists that the first step of the pact would enable the corporation reduce its obligation by 30 per cent.
Nigeria’s Power Sector
The African Development Bank (AfDB) last week indicated it had approved $184.2 million loan to encourage private investments in the Nigerian power sector. The facility is under the bank’s Partial Risk Guarantee (PRG). The AfDB also said it had approved $3.1 million loan to enhance capacity building in power generation and distribution to meet the country’s 40,000mw target by 2020.

“The board of directors of the AfDB group approved an African Development Fund (ADF) Partial Risk Guarantee (PRG) program of $184.2 million and an ADF loan of $3.1 million for capacity building, to support the Nigerian power sector privatisation programme.

“The board’s decision will allow the AfDB to support the Nigerian government’s efforts to reform the power sector and position the country for sustainable and inclusive growth,” the AfDB added.
According to the institution, the PRG program in Nigeria was aimed at increasing the country’s electricity generation by catalysing private sector investment and commercial financing in the power sector.

Planned GDP Rebasing
The planned rebasing of Nigeria’s Gross Domestic Product (GDP) is expected to increase the estimated size of the economy from N42 trillion ($265 billion) to N64 trillion ($405 billion). This would give the country the largest GDP in Africa; higher than South Africa whose GDP is about $385 billion. In addition, globally, the exercise would move the Nigerian economy from 36th in the world to 28th, displacing Thailand.

In its latest report, Renaissance Capital Limited (RenCap), an investment and financial advisory firm however pointed out that improving the measurement of the GDP does not raise monthly wages nor does it make Nigeria better off in any obvious material way.

The RenCap report added: “Under the rebased figures, Nigerians will still have lower per capita GDP ($2,400) than Egypt after three hard years of political instability, and far less than South Africa ($6,800). This will not be easy to explain to the population.”

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