Naira stability expected as analysts anticipate forex policy relaxation by CBN

The nation’s currency, the naira, is expected to remain stable this week even as analysts anticipate that the Central Bank of Nigeria (CBN) will relax the foreign exchange requirements for bureau de change (BDC).
The CBN last week gave a directive to BDCs to increase their capital base to N35 million and keep a caution fee of N35 million in a non-interest bearing account with the apex bank.

“We believe that the central bank will either lower the capital requirement and caution deposit or extend the deadline for compliance beyond the July 15, 2014 date stipulated in its directive”, analysts at Cowry Asset Management Limited have said.
Last week the CBN sold USD604.58 million (or N94.15 billion) to end users at its bi-weekly Retail Dutch Auction (RDAS) lower than USD642.34 million (or N100.05 billion) sold the preceding week. Consequently, the official Naira/USD rate closed steady at N155.73/$1. Meanwhile, the naira appreciated in all alternative market segments as local units of Royal Dutch Shell sold an undisclosed amount of dollars while Italy’s Eni selling about USD15 million. At the inter-bank market, the naira appreciated by 0.25% (or N0.40) to N162.65/$1. The local currency also rose at the bureau de change (BDC) and parallel markets by 0.60% (or N1.00) and 0.89% (or N1.50) to N166.00/$1 and N167.00/$, respectively.
Also this week, inter-bank rates are expected to rise following absence of any major inflow amid outflows for forex purchases at the bi-weekly Retail Dutch Auction System (RDAS).
The CBN will this week auction treasury bills worth N70.56 billion via the primary market, viz: 91-day bills worth N20.16 billion; 182-day bills worth N50.40 billion; Also, treasury bills worth N70.56 billion will mature, viz: 91-day bills worth N20.16 billion; 182-day bills worth N50.14 billion.
Last week, the Nigerian Inter-Bank Offered Rates (NIBOR) increased for most placement tenors amid strained financial system liquidity. In line with expectations, the 1 month, 3 months and 6 months tenor rose to 12.35%, 13.43% and 14.39% (from 11.90%, 13.16% and 14.13%), respectively. However, the overnight tenor remained steady at 10.50%.
On the other hand, bond prices are expected to moderate (with corresponding increase in yields) atop profit taking activities and expected strain in financial system liquidity.
The Federal Government bonds last week traded at the over the counter market appreciated (and yields declined) for most maturities amid bargain hunting activities. The 20-year, 10.00% FGN July 2030 bond advanced by N4.40 (yield decreased to 12.19% from 12.94%). Also, the 10-year, 16.39% FGN January 2022 debt gained N1.55 (yield decreased to 11.77% from 12.05%); the 7-year, 16.00% FGN June 2019 instrument firmed by N0.20 (yield declined to 11.36% from 11.42%); the 5-year, 15.10% FGN April 2017 paper increased by N0.30 (yield decreased to 11.26% from 11.40%); while the 3-year, 13.05% FGN August 2016 bond appreciated by N0.30 (yield decreased to 11.21% from 11.32%).