Weak-Ahead-FX: Naira seen stable as investors repatriate dividends, profits from bond market

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Nigeria’s naira is seen stable next week supported by the central bank after it weakened on the over-the-counter market as investors repatriated dividends and profits from the bond market, traders said.

The naira eased as low as 364 to the dollar this week before firming to trade at a range of between 363 and 363.50. The currency had been quoted at a range of 362-362.50 last week.

The currency was quoted at 306.95 on the official market, supported by the central bank. Nigeria operates a multiple currency regime.

“We are seeing offshore outflows and not much is coming back in,” one trader said. “I expect that to continue next week. If there is no anchor, the currency could weaken.

Early in the month the volume of dollars traded (turnover) in the Investors and Exporters (I&E) window of the foreign exchange market grew by 26 per cent, month-on-month, to $5.3 billion in November from $4.2 billion in October, 2019.

This represents the first monthly increase in the monthly turnover since August.

Turnover in the window rose by 75 percent to $7 billion in August, courtesy of increased inflow from foreign portfolio investors (FPIs). Monthly turnover, however, dropped by 44 percent to $4.4 billion in September, from where it further fell to $4.2 billion in October, before rising by 26 percent to $5.3 billion in November.

Naija247news analysis of weekly turnover in the window showed that $112.88 million was traded in the first week of November, while $1.4 billion was traded in the second week. In the third week, turnover rose 14 percent to $1.6 billion but fell by 25 percent to $1.2 billion in the fourth week and down again by 17 percent to $991.68 million in the fifth week of November.

However, the naira depreciated by six kobo in November as the indicative exchange rate of the window rose to N362.81 per dollar on November 29 from N362.75 per dollar on November 1. Analysts, however, expect the naira to remain stable at current levels in the various segment of the foreign exchange market due to continued intervention by the CBN.

Naija247news recalled that Nigeria will offer Eurobonds as early as the first quarter of next year after staying out of international debt markets this year.

“We have to do it quickly because we want to make sure we have enough funds for the implementation of the budget,” Finance Minister Zainab Ahmed said in an interview on the sidelines of a regional International Monetary Fund conference in Dakar, Senegal, on Monday.

The amount the government offers will be determined by how much it raises from concessional lenders such as the African Development Bank, she said. “What we’re not able to get in concessionary loans, we’ll go for the commercial window. Eurobond is one option.”

Africa’s top oil producer issued a record $10.7 billion of international bonds in 2018, and some investors were betting it would sell more this year to cover its widening budget deficit. The nation’s debt management office in October ruled out further sales in 2019.

Years of low interest rates in developed countries have bolstered demand for emerging-market debt. African nations issued a record amount of Eurobonds last year, raising worries about their capacity to repay ballooning debt costs.

Yields on Nigeria’s $1.5 billion of debt due August 2047 rose 8 basis points to 8.29% by 12:38 p.m. in London on Tuesday, compared with 7.63% when they were issued two years ago.

Nigeria’s economy is expected to expand 2% this year, a far cry from average growth of 7% a year in the decade prior to its recession in 2016. Bank of America Merrill Lynch said in September it expected the government to issue at least $2.6 billion in Eurobonds in the last quarter of the year, before the state ruled out further borrowing for this year.

In the past week, President Muhammadu Buhari brought an old request to borrow about $30 billion in foreign loans before parliament. The senate rejected Buhari’s external borrowing plans, which covered 2016 through 2018, when it was first presented three years ago.

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