Foreign reserves up by $1.78bn to $35.77bn

The nation’s external reserves gained total sum of $1.78billion in 14 days to close last Thursday at $35.77 billion from $33.99billion it stood at the beginning of May, data obtained from the official website of the Central Bank of Nigeria (CBN).
Looking at the foreign reserves figure which stood at an average of $34 billion when activities opened for May, before climbing to $35.03 billion on May 14th, however, gained $730 million in just one week to steady at $35.77 billion as of 21st of the same month.

Consequently, the Naira gained some ground against the dollar by 0.20 per cent week-on-week (w/w) to N385.94/USD at the Investors & Exporters Foreign Exchange (I&E FX) window but slid by 2.1per cent w/w to N460.00 against the dollar in the parallel market.

“In the Forwards market, the naira appreciated against the dollar across all contracts, save for the 1-month (-0.02 per cent to N388.21/USD).

Notably, the 3-month (+0.2 per cent to N391.62/USD), 6-month (+0.5 per cent to N396.74/USD), and 1-year (+1.0 per cent to N414.48/USD), contracts all recorded stronger naira values against the greenback.

“We still hold the view that the RFI inflow will continue to provide short-term support for the FX reserves.

“Nonetheless, we expect the currency market to remain largely volatile, especially in the parallel as the CBN’s suspension of FX sales to BDCs continues to create a backlog of unmet FX demand,” explained analysts at Cordros capital said.

They explained further that “The overnight (OVN) rate expanded by 13.63ppts, w/w, to 15.6. The OVN steadied at c. two per cent levels for most of the week, as system liquidity was supported by inflows from FAAC allocation (c. N300.00 billion) and FGN bond coupon payments (N17.87 billion).

“However, debits for Wednesday’s FGN bond PMA (N295.37 billion) and CRR debits caused the eventual expansion in the OVN rate to its current level.

“We expect the OVN rate to trend southwards next week, as inflows from OMO maturities (N319.72 billion) and FGN bond coupon payments (N5.63 billion) come into the system.

Trading in the Treasury bills, the secondary market was bullish, as the average yield across all instruments contracted by 177bps to 4.9per cent.

The contraction was majorly influenced by trading activity at the OMO segment (average yield: -242bps to six per cent) as market participants demanded mid and long tenor instruments due to no sales at the last auction.

“At the NTB segment, the average yield contracted by 11bps to 2.2 per cent due to piqued investors’ interest following improved rates in the space.

“In the coming week, we expect healthy demand for T-bills, as system liquidity improves with expected inflows in the week. In the NTB segment, we expect the focus to be shifted to next week’s PMA.

“While there is no indication of the amount to be offered, we expect a similar result from the last NTB PMA,” analysts at Cordros capital explained.