Following the latest open market operation auction held by the Central Bank of Nigeria (CBN), international portfolio investors increased their US dollar flows into the market. Despite the fixed income market’s negative interest yield, the central bank marketed OMO notes at higher rates to entice international portfolio investors.
Because of a well-saturated forex supply, the Naira made a strong return, regaining value lost due to an increase in US dollar demand. Unfortunately, the exchange rate reverted to its previous order after strong forex demand from manufacturers and importers surpassed the amount of foreign currency at the official market during the middle of the week.
According to statistics from the FMDQ portal, the Nigeria Autonomous Foreign Exchange Market (NAFEM) fluctuated between N475 and N1270 per US dollar last week before closing at N890.5. According to Coronation Research, this indicates a -2.4% devaluation, or N21.2. In the futures market, forex traded between N895 and N1298.
The one-month foreign currency forward contract fell -8.5% to N983.9 on Friday, while the three-month contract fell -8.1% week on week to N1,005.1. The black market exchange rate deteriorated as January import demand picked up. On Friday, the parallel market saw the Naira close at an average of N1,265.
At the level, the current gap between the NAFEM and the parallel market rate printed at 42%, a decline from 45.1% registered in the past week. According to data from FMDQ, NAFEM turnover increased by +85.1% or USD300.9 million over the week to USD654.4 million, market data gathered for last week showed.
The NAFEM window recorded an inflow of USD21.88 million as there were no injections made by the CBN for fourteen consecutive weeks, Coronation Research said. However, FPIs accounted for 25.8% of the inflow. Analysts said this surge from FPIs is partly attributed to improved investment appetite towards CBN’s OMO auctions.
Also, non-bank corporates accounted for 33.2% while inflows from exporters accounted for 36.2%, and others accounted for 4.8%. Last week, the CBN held an OMO auction, offering participants instruments worth N300.00 billion. This offer was split into N75.00 billion for the 97-day, N75.00 billion for the 181-day, and N150.00 billion for the 363-day bills.
The subscription level at the auction settled at N414.20 billion, translating to a bid-to-offer of 1.4x, with the eventual allotment amounting to N357.20 billion. Details results showed that N22.00 billion allotment was made for the 97-day, N35.20 billion for the 181-day and N300.00 billion for the 363-day.
The 97-day OMO bills attracted 10.50% while the spot rate for 181-day bills rose to 14.00% from 12.00%, and OMO bills for 363-day were sold to investors at the spot rate of 17.75%, which represents a steep increase from 15.00%.
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