Five-year naira futures sllide after CBN weakened contract

Nigeria’s five-year naira futures slid past N550 to the dollar last week after the central bank weakened the naira on the derivatives market, signaling more pain to come for the currency, traders said.

The bank softened the currency on average by N73 across tenors, traders said, with the one-year maturity revised by N27.

Reuters reported that the five-year naira futures, introduced in February, weakened to N569 per dollar, from N413 in the previous session. The naira has been hitting new lows on the black and over-the-counter spot markets since March after the central bank adjusted its official rate, implying a 15 per cent devaluation.

An oil price crash last month, triggered by a coronavirus pandemic, also worsened dollar shortages.

Dollar demand has been swelling and piling up pressure on the naira, just as importers with past due obligations have been scrambling for hard currency while providers of foreign exchange such as offshore investors have exited.

The market differential between one-year naira futures and forwards narrowed to N104  on Thursday from N130 in March, showing that the bank is keen to close the currency gap after an oil price plunge put the naira under pressure.

The non-deliverable forwards (NDF) market traded in London, which gives an indication of where the currency could trade in a year’s time, quoted the naira at N525 to the U.S. dollar.

The central bank devalued the official currency rate two months ago in a move to converge a multiple exchange rates regime which it has used to manage pressure on the naira.

But dollar shortages has caused the gap between the black market and official market to widen especially after the bank suspended dollar sales in the wake of a coronavirus lockdown.

The bank has resumed dollar sales to local clients last week, selling around $100 million per week but is yet to sell to offshore investors, traders say, estimating backlog demand at around $1.5 billion to $1.8 billion.

 

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