The naira fell 1.93 per cent week over week to N1,380.58 per dollar on the official market, as persistent demand for foreign exchange continued to exceed supply despite rising oil prices and a high system liquidity of N5.93 trillion.
The naira also lost 2.66 percent on the parallel market last week, closing at an average of N1,393/$1 as pressure in the foreign exchange market increased.
BrandSpur banking and finance news desk reports that increased demand for dollars for international settlements and import-related obligations, which further strained the available FX supply, was a major contributing factor to the weakness.
Crude oil futures surged above $98 per barrel amid heightened geopolitical tensions between Iran and the United States/Israel, marking a significant rise in global commodity prices. In spite of this, Nigeria’s foreign exchange reserves saw a slight decrease, dropping by 0.7% to $49.48 billion, indicating a $350 million depletion and ongoing strain on the country’s FX buffer.
While rising oil prices might offer some short-term respite, analysts pointed out that ongoing foreign exchange demand and diminishing reserves might put pressure on the naira in the near future, with the currency predicted to move within a volatile range.
Liquidity conditions in the money market were still strong, but they were less severe than they had been the week before. After outflows associated with settlements from recent CBN auctions, system liquidity closed at a net surplus of N5.93 trillion, down from N8.24 trillion. In the context of the liquidity dynamics, interbank rates showed inconsistent fluctuations. Throughout the week, inflows of N800 billion in maturing open market operation (OMO) bills helped the Nigerian Interbank Offered Rate (NIBOR) decline.
However, the overnight NIBOR remained at 22.38 percent due to offsetting debits from OMO and treasury bill settlements. The funding rate remained at 22.00 percent, while the overnight rate increased by five basis points to 22.26 percent.
The market for Treasury bills saw a wide range of yields. With yields on the 1-month, 3-month, and 6-month instruments rising by five basis points, 32 basis points, and seven basis points, respectively, the Nigerian Treasury bills true yield (NITTY) curve slightly increased across the majority of short- and mid-term tenors. However, due to increased investor demand for longer-dated instruments, the 12-month yield fell by 34 basis points.
The average yield decreased by 19 basis points to 17.76 percent week over week as a result of the secondary market’s continued muted activity and selective demand at the mid- to long-end supporting prices.
Investor demand was still very high at the primary market auction for Treasury bills. Despite the CBN’s N400 billion offer, allotments increased to N693 billion and total subscriptions reached N3.1 trillion. The 91-day stop rate remained at 15.95 percent, while the 182-day and 364-day stop rates decreased to 16.42 and 16.43 percent, respectively.
