Energy commodities rout, falling reserves fail to destabilise naira
EN ERGY PRICES persisted into the week as emerging signs of oversupply, particularly, continue to pressure oil prices downwards; Brent Crude declined 7.2 percent W-o-W (as at the time of reporting) from $66.76/b to $61.96/b.
Although declining global oil prices should fundamentally signal a devaluation of currency in the horizon or at least a depreciation of exchange rate at the “perceived market-reflective” I&E window, the commitment of the CBN to the defence of the naira keeps providing stability for exchange rates at different segments of the FX market.
Consequently, Nigeria’s external reserves, during the week, dropped to its 8-month low after shedding 27 basis points W-o-W to settle at $41.5 billion as at 21 November, 2018; the currency reserves are down 13.1 percent June 2018 till date, falling from a high of $47.8 billion in the same period of 2017.
In the week, the CBN sold a total of $210.00m at various market segments, including $100.00m sold at the wholesale segment, $55.00m at the SME segment and another $55.00m offered at the invisible segment (tuition fees, medical payments as well as PTA and BTA).
Accordingly, the CBN spot rate closed the week somewhat flat at N306.75/$1.00 from N306.70/$1.00 in the prior week.
Similarly, the exchange rate depreciated by 19 basis points at the I&E window to close at N364.70/$1.00 although activity level improved significantly by 24.0 percent to $1.0bn from $0.8bn in the prior week.
At the parallel market, the naira traded at N364.00/$1.00 throughout the week. However, at the FMDQ OTC FX Futures Market, the value of open contracts rose 0.4 percent W-o-W to $5.01bn from $5.00bn last week, with significant buying interest noticed in the AUG 2019 instrument.
Whilst the recent downside risk of capital flow reversals is not anticipated to disperse in the coming week, Afrinvest analysts said the potency of the Apex Bank’s intervention supplies to steady exchange rates across major market segments.