The naira exchange rate fell ahead of $500 million in domestic US dollar bond sales, while the foreign reserves balance plummeted, according to statistics.
Nigeria’s foreign currency reserves fell by US$301.32 million week on week to US$36.53 billion following the Central Bank’s FX intervention in last week’s Retail Dutch Auction (RDAS).
The country’s external reserves had reached an 18-month high of $36.872 billion before the central bank sold US dollars to licensed dealers banks at the Dutch auction.
Analysts estimate that the amount in external reserves would have been sufficient to back the local currency, but a large portion or sum has been pledged against various contractual agreements with NNPCL and the Nigerian government.
Nigeria’s Debt Management Office has plan to sell $500 million domestic bond this week as part of efforts to boost US dollar inflows in the economy, and part finance government spending plans.
At the close of the week, the naira depreciated by 0.4% to N1,579.89 per US dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) as the total FX turnover rose.
Meanwhile, the activity level in the NAFEM window increased 64.0% week-on-week to $1.1 billion, Afrinvest said in a note.
In the parallel market, the naira rose 0.6% week on week to close at ₦1,585.00 on Friday. Analysts said they expect rates across FX segments of the market to follow a similar trend, barring any market shock.
In the forwards market, the naira rates on the 1-month contract rose by 0.5% to N1,614.75 and the 6-month contract gained 1.1% to NGN1,754.29.
On the other hand, a 3-month forward contract depreciates by -0.2% to N1,687.74 while a 1-year forward contract fell by 2.3% to N2,004.63 per US dollar.
“Whilst FX liquidity tightened during the week, the naira traded with less volatility due to waning demand pressure following the CBN’s FX retail auction last week,” Cordros Capital Limited said.
The firm maintained that the naira may remain pressured in the interim due to limited inflows from the CBN and weak FPI flows. However, the DMO is set to issue a domestic FGN US dollar bond on August 19 with an offer of US$500.00 million.
“We highlight that the successful issuance of the bond will boost the external reserves, supporting the CBN’s ability to stabilise the naira in the medium term,” Cordros Capital Limited said.
