Naira Gains as Traders Reduce FX Exposure ahead of CBN Auction

Admin 02-Sep-2020 Business

Naira Gains as Traders Reduce FX Exposure ahead of CBN Auction

Naira appreciates Tuesday as currency traders reduce exposures ahead of the Central Bank of Nigeria weekly intervention FX sales resumption starting on September 07, 2020.

The local currency gained against the greenback in the parallel market, appreciating by 5.7% or ₦25 to ₦440.

With resumption of intervention sales initially suspended follow global economic lockdown, currency traders have started to offload their pockets.

This has eased pressure between demand and supply, and exchange rate has been following adjustment since the beginning of the week.

In the I&E Window, the naira appreciated by 0.09% or 33kobo to close at ₦386.00 as the nation’s external reserves declined 0.06% in August to close the month at US$35.67 billion.

Meanwhile, interbank funding pressures eased further yesterday, as financial system liquidity opened higher at ₦255 billion from ₦245 billion in the previous session.

Subsequently, the Open Buy Back (OBB) and Overnight (OVN) rates declined by 3.35% and 3.22% to 5.75% and 6.38% respectively.

Barring any major liquidity outflow, Chapel Hill Denham stated that the firm expects funding pressures to continue to ease.

The firm attributes the expectation to possible improvement in liquidity set to be boosted by OMO maturities scheduled for Thursday (₦321.48bn).

In the Fixed Income market, sentiments remained broadly lackluster in yesterday’s trading session.Naira Gains as Traders Reduce FX Exposure ahead of CBN Auction

At the front end of the curve, discount rates on benchmark Nigerian Treasury Bills were unchanged at an average of 2.30%.

However, sentiments remained bullish in the OMO segment, as discount rates on benchmark bills compressed by an average of 11 basis points (bps) to 3.08%.

The bond market posted a mixed performance, as upward repricing of yields at the short and long end of the curve, was offset interest in intermediate bonds.

As a result, Chapel Hill detailed that the yield curve expanded by 6 bps to 7.97%.

The CBN recently announced that interest rate on savings deposit will now be subjected to a minimum of 10% per annum of the Monetary Policy Rate (i.e. 1.25%), down from the previous regulatory minimum of 30% of MPR (i.e. 3.75%).

The previous regulatory minimum rate was set in a period when market interest rates were not so divergent from the MPR.

More recently, market interest rates are trading at a much lower level compared to the benchmark rate, thereby necessitating the new directive.

The move aligns with the recent dovish policy tilt of the central bank, and will also help banks lower their cost of fund and bolster net interest margin.

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