Thursday, 5 September 2013

Demand Pressure Weakens Naira

B1710212-Naira-notes.jpg - B1710212-Naira-notes.jpgThe naira depreciated against the United States dollar at the interbank, bureau de change (BDC) and parallel segments of the forex market last week due to increased demand for the greenback.

THISDAY learnt the nation’s currency slipped due to increased demand for dollars by oil marketers for the importation of petroleum products for the fourth quarter of the year. Also, demand for dollars for the importation of other goods as the fourth quarter of the year approaches is expected to further put pressure on the naira.
However, the naira was stable at the Central Bank of Nigeria’s (CBN’s) regulated Wholesale Dutch Auction System (WDAS).
Specifically, while the naira shed 58 kobo to close at N162.05 to a dollar at the interbank market on Friday, compared to the N161.47 to a dollar it attained the preceding Friday, at the BDC segment, it also dipped by N1 to close at N163.50 to a dollar on Friday as against the N162.50 to a dollar it stood the preceding Friday. Also, at the parallel market, the nation’s currency slipped by N1.30 kobo, from N162.70 to a dollar the preceding Friday, to N164 to a dollar last Friday.

The naira had slipped to its lowest value against this year at the interbank market last Thursday when it closed at N163.70 to a dollar.
However, at the central bank’s regulated bi-weekly forex auction, the naira maintained its value of N155.76 to a dollar. The CBN sold a total of $563.46 million at the two auctions held last week, higher than the $548 million sold the preceding week.
It was largely expected that the imposition of the 50 per cent cash reserve requirement (CRR) that was imposed on public sector funds by the CBN would strengthen the naira in the short-term, but this was yet to materialise.
However, the Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, argued: “Like every central bank, we trying to defend the currency. But my experience shows that a war against the currency is a war in futility. Go and ask the George Soros or those who fought it.”
Also, the Emerging Market Strategist at Standard Bank Plc, Mr. Samir Gadio, said it was questionable whether the CRR on public sector funds would intrinsically result in a qualitatively stronger naira because of its muted impact on market yields.
“It will rather cap the upside for dollar/naira and signal that the CBN will continue to defend exchange rate stability via direct and indirect measures as long as Governor Sanusi Lamido Sanusi remains in charge (until June 2014).
“With around $47 billion of forex reserves, the central bank also has enough ammunition to supply adequate levels of dollars to corporate and, if needed, the interbank market, for some time. Additionally, the elevated Bonny Light oil price ($113.6 per barrel on 22 August) reduces the possibility of a disorderly shift up in the exchange rate,” Gadio added.
Also, Kunle Ezun and Kenneth Asenime of the Ecobank Group, in a joint report said the naira remained under pressure due to structural imbalance between dollar supply and demand.

The Nigerian Interbank Offered Rates (NIBOR) reduced to an average of 12.76 per cent on Friday, as against the 16.3 per cent it was the preceding Friday, as funds from the Federation Account Allocation Committee (FAAC) to the three tiers of government hit the system.
Data gathered from the Financial Market Dealers Association (FMDA) showed that while the Call tenor dropped to 11.67 per cent on Friday, from 15.71 per cent the preceding Friday, the 7-day tenor also reduced to 12 per cent, from 15.96 per cent the preceding Friday. In the same vein, just as the 30-day tenor lowered to 12.46 per cent on Friday, from 16.08 per cent, the 60-day tenor also reduced to 12.75 per cent, from 16.37 per cent. The 90-day tenor, 180-day tenor and 365-day tenor  closed at 13.17 per cent, 13.42 per cent and 13.87 per cent respectively.
FAAC had deducted N115 billion from the Excess Crude Account (ECA) to make up for revenue shortfall for July. A total statutory revenue of N715.84 billion was shared among the three tiers of government for July.
Bond Market
A report by Afrinvest Securities Limited showed that yields in the bond market were less volatile compared to the previous week, at an average yield of seven basis points.
It however said pressure was sustained at the short end of the yield curve as foreign bond portfolios became slimmer.
The 10-year 16.39 per cent FGN JAN 2022 bond and the 20-year 16.39 per cent FGN JAN 2022 bonds both closed at 13.5 per cent yield, keeping the yield curve flat at the long end.
The Nigerian Eurobond due January, 2021 closed at 5.76 per cent, with a 5-day moving average yield of 5.6 per cent.
“The Nigerian Eurobond continues to appeal the international market giving their risk-adjusted high yields and relatively strong fiscal stance of the issuer. In addition, the Debt Management Office is set to issue $100 million Diaspora Eurobond in the near term,” Afrinvest added.
The Nigeria Sovereign Investment Authority (NSIA) last week announced the appointment of Goldman Sachs, UBS and Credit Suisse as asset managers to the 20 per cent portion of the $1 billion Sovereign Wealth Fund (SWF) that is meant to cushion against oil price shocks. The SWF hopes to achieve infrastructure development (infrastructure fund) provide a savings pot for future generations (future generations fund) and protect against fiscal shocks (stabilisation fund).
“Although capital preservation underscored the fund’s investment activities, the potential effect of pumping these billions into our shallow capital market remain a catalyst that we are watching very closely,” Afrinvest said.
External Reserves
Nigeria’s external reserves continued its lacklustre performance since this quarter as it fell to $46.853 billion last Thursday, its lowest value this month. Data gathered from the central bank showed that the current position of the reserves derived mainly from the proceeds of crude oil production and sales represented a decline by $206 million or 0.44 per cent, compared to the $47.059 billion it stood as at August 1. The foreign reserves has largely hovered around $46.8 billion and $47.1 billion this month.
The Chairman of the Subsidy Reinvestment and Empowerment Programme (SURE-P), Dr. Christopher Kolade, last week lamented the high unemployment rate in the country, saying over 40 million Nigerians were jobless. According to him, the federal government was not comfortable with the high unemployment rate and was doing everything possible to reverse it. Kolade disclosed President Goodluck Jonathan was committed to solving the employment problem through the SURE-P.
"Through the GIS, we have the mandate to create 50,000 jobs. This sensitisation workshop is therefore very important to us because it is part of our commitment to ensure that the GIS achieve the objectives for which it was set up," he said.
GDP Rebasing
The Statistician-General of the Federation (SGF), Mr. Yemi Kale, has said the proposed rebasing of the country’s gross domestic product (GDP) is not a guaranty that the economy would expand.
Kale argued that developments over the past 23 years since the existing "base year" was established suggested that the GDP could significantly appreciate when the rebasing is completed.
“We did a survey of about 40 other countries, in some countries like Ghana it went up to about 50 per cent, some 10 per cent and some actually went down. So we do not know whether it's going to go up or down at this point."
He also disclosed a tentative rebasing estimate would be provided in December because "all the things we needed for it to work out are now in our control," he explained.
Source: ThisDayLive

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