Nigeria’s foreign exchange (FX) market witnessed a downturn as the Naira depreciated against the dollar on Thursday, compounding its downward spiral that has put the nation’s economy on the edge.
The decline followed a reduction in FX sales by banks, with the volume of dollars exchanged between banks and willing buyers and sellers dropping by 6.13 percent to $321.23 million compared to the previous day’s $342.22 million.
Data from the Financial Markets Dealers Quotations (FMDQ) revealed that the Naira fell by 4.10 percent, with the dollar quoted at N1,479.47 on Thursday, weaker than the N1,418.78 recorded on Wednesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
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The intraday high closed at N1,504 per dollar, slightly stronger than Wednesday’s N1,510, while the intraday low weakened to N946.82 per dollar, down from N896.28/$1 on Wednesday.
In the money market, the Nigerian Treasury Bills (NT-Bills) secondary market experienced a negative trend, marked by an increase in average yields across the curve. FSDH Research reported a significant surge in the average yield by 261 basis points (bps) to reach 14.99 percent, compared to the previous day’s 12.38 percent.
Short-term and medium-term maturities saw notable expansions of 572 bps and 509 bps, respectively, while long-term maturities witnessed a slight decline of 11 bps. The NTB for March 7, 2024 maturity bill experienced heavy selling pressure (+634 bps), whereas buying interest was observed on the NTB for August 8, 2024 (-53 bps).
Simultaneously, the Central Bank of Nigeria (CBN) conducted its scheduled Primary Market Auction on February 7, issuing NT-Bills valued at N1,000.00 billion across varying tenors. Despite higher stop rates, the auction saw robust demand, with bid-to-cover ratios settling at 0.20x (91-day), 0.38x (182-day), and 3.11x (364-day), indicating strong investor appetite.
In the Open Market Operations (OMO) bills market, there was a slight positive sentiment as the average yield across the curve dipped by 1 basis point to close at 10.07 percent. Long-term maturities also saw a marginal decline of 1 basis point, with mild buying interest noted on the OMO 10-December 2024 maturity bill.
These developments underpin the continuous volatility of Nigeria’s debt market, creating doubts for investors as the fluctuations dampen economic growth. However, the high demand observed at the Primary Market Auction despite higher stop rates suggests that investors remain interested in Nigerian debt instruments, albeit amidst the challenges posed by the FX market and other economic factors.
The fluctuations in the Naira exchange rate and the surge in average yields on NT-Bills, which reflect the ongoing volatility and uncertainties in Nigeria’s financial sector, highlight the ineffectiveness of the government’s approach in addressing the concerns.
The CBN has rolled of out a series of new policies geared toward boosting the performance of the naira in the FX market recently. The policies, accompanied by an assurance from the central bank governor Yemi Cardoso that inflation, currently sitting at over 28%, will drop to 21% in 2024, have failed to show any signs of mitigating the FX challenges.
The CBN announced that it has cleared about $3 billion in FX forwards backlog, which has been fingered as the major instigator of the naira’s weakness in the foreign exchange market. With no positive impact from these efforts, Nigerians have expressed concern that clearing all the backlogs in FX forward obligations may not be the answer to the urgently needed succor to the naira’s depreciation.