Pressure on naira expected on back of falling oil prices

Outlook for naira dims as analysts anticipate
pressure on the local currency this week due to
falling oil prices amid sustained high demand
for
U.S. dollars by end users.
The price of crude oil (Bonny Light) has dropped
by 7.76 percent to $101.0/barrel as at August
25, 2014 from $108.84/barrel as at March 2014,
according to data obtained from the Central
Bank of Nigeria’s (CBN) website.
Last week, the local currency depreciated
marginally by 0.02 percent (N0.04) week-on-
week to N162.15/$1 at the interbank market
segment. At other alternative market segments,
the local currency appreciated in line with
expectations of the analysts at Cowry Assets
Management Limited by 2.05 percent (N3.50) to
N167.00/$1 at the bureau de change market
and at the parallel market by 2.04 percent
(N3.50) to N171.50/$1.
However, the CBN offered USD750 million but
sold a total of USD745.21 million (or N116.05
billion) to end users at the Retail Dutch Auction
(RDAS) last week. This was a 6.5 percent
increase from the USD699.68 million (or N108.96
billion) sold in the preceding week. The official
USD/naira rate thus held steady at N155.73/$1.
Meanwhile, local units of oil multinationals sold
a sum total of USD184 million to lenders –
Exxon Mobil sold USD50 million, Italian
multinational Eni sold USD17 million, while Total
and Chevron sold a combined USD117 million.
Also this week, interbank rates are expected to
rise as combined outflows via purchase of
treasury notes and foreign exchange triggers
liquidity strain in the absence of any major
inflow.
The CBN will this week auction treasury bills
worth N182.85 billion via the primary market,
viz: 91-day bills worth N27.85 billion; 182-day
bills worth N65.00 billion; and 364-day bills
worth N90.00 billion. Also, treasury bills worth
N182.85 billion will mature via the primary
market viz: 91-day bills worth N27.85 billion;
182-day bills worth N65.00 billion; and 364-day
bills worth N90.00 billion.
Last week, movements in the Nigerian Inter-
Bank Offer Rates (NIBOR) were mixed- declining
for shorter tenor buckets and advancing for
longer tenor buckets. NIBOR declined for the
overnight and 1 month tenor, respectively to
11.12 percent (from 11.37 percent) and 12.56
percent (from 12.79 percent). However, NIBOR
advanced for the 3 months and 6 months
tenors, respectively, to 13.46 percent (from
13.35 percent) and 14.38 percent (from 14.14
percent).
At the bond market this week, analysts expect
sustained bearish activities and resultant price
declines against the backdrop of expected
liquidity strain in the financial system.
At the over-the-counter market, last week,
prices of Federal Government bonds declined
for most tracked maturities. The 7-year, 16.00
percent FGN June 2019 paper depreciated by
N0.3 (yield rose to 11.18 percent from 11.12
percent); the 5-year, 15.10 percent FGN April
2017 note shed N0.35 (yield climbed to 11.17
percent from 11.04 percent); while the 3-year,
13.05 percent FGN August 2016 debt tanked by
N0.13 (yield increased to 11.14 percent from
11.09 percent). However, the 20-year 10.00
percent FGN July 2030 bond rose by N0.30 (yield
fell to 12.10 percent from 12.15 percent) while
the 10-year, 16.39 percent FGN January 2022
instrument appreciated by N0.05 (yield declined
to 11.71 percent from 11.72 percent).
Meanwhile, Nigeria’s 14.20% FGN March 2024
bond was added to the JP Morgan Bond Index
on Friday, August 29 2014.