Naira on recovery path at all market segments

Lending rate soars on tight liquidity

The Nigerian naira appreciated in all foreign exchange market segments on Tuesday, following interventions from the Central Bank of Nigeria (CBN) and improved dollar supply to the alternative markets.

At the interbank market, the naira on Tuesday closed at N305 to the dollar compared with N305.50 which it closed at on Monday, a range it has closed at for nearly two months, traders said.

This was after the central bank intervened on with dollar sales to support the local unit.

The local currency on Tuesday recorded more gain against the dollar as it now trades at N453/$1 at the parallel (black) market. This is higher than the N455/$1 it was on Monday, October 17.

The naira was quoted at N455 to the dollar on the black market on Monday, firmer than N460 at its previous session, as international money transfer operators had started to sell dollars to retail currency outlets.

The currency had weakened to a record low of N495 per dollar on the black market last month.

Currency dealers the apex bank, which has been selling dollars regularly to prop up the currency, sold around $1.5 million towards the close of Monday’s trade after the market was open for nearly four hours with no deals.

Similarly, lending rates soared as a result of tight liquidity because lenders were barred from central bank’s repo (repurchase agreement) window before any currency auction.

Data from the Financial Markets Dealers Quotes (FMDQ) showed that Open Buy Back (OBB) and Overnight (O/N) rates spiked from 103.3per cent and 111.8per cent on Friday respectively to 151.67 and 153.50 on Tuesday. This came two days after lenders placed funds with the central bank to participate in last Friday’s currency forward auction.

Traders said that many banks had Naira funds locked away with the CBN on the day of the auction to pay for the dollars which they expect to receive in two months’ time. Central bank was yet to announce result of the auction. Repo is a form of short-term borrowing for dealers in government securities

“Most banks are not quoting rates because they are still waiting for the result of the FX auction,” Reuters quoted one trader as having said on Tuesday.

Dealers said few deals were done on Tuesday due to a shortage of Naira on the money market, with lenders reluctant to place funds among themselves until the result of Friday’s currency auction was published.

On Friday, the central bank held a two-month dollar forward auction to clear a backlog of demand from airlines, manufacturers and other companies, as the currency crisis deepened. It later directed lenders to re-submit bids again on Monday, traders said.

The regulator has been tightening liquidity and intervening directly with dollar sales to commercial lenders to support the ailing naira, hit by the fall in oil prices, Nigeria’s economic mainstay.

Overnight rates closed at 128 percent on Monday after they opened at 100 percent, up from 14 percent on Thursday.

The money market ended with no deals on Friday as lenders held onto naira to be able to participate at the auction