Naira Depreciates Against Three Currencies At Interbank Market

Naira, dollar, Market FX marketThe Naira depreciated against three currencies at the interbank market on Wednesday.

The local unit depreciated by 0.23 percent to 314 Naira 92 kobo to the Dollar, 3.13 percent to 422 Naira 64 kobo to the Pound and by 0.33 percent 352 Naira 46 kobo to the Euro.

At the parallel market, the Naira firmed by 0.47 percent to 423 against the Dollar, but fell 0.56 percent to 540 against the British Pound, and traded flat at 465 against the Euro.

Traders are optimistic that the Naira may appreciate this week, following the re-reinstatement of the eight banks previously banned by the Central Bank Nigeria (CBN) from the Forex market, and the licensing of 11 new international money transfer operators, to address the Dollar supply.

Dangote Set To Launch Nigeria’s First Private Refinery

DangoteAfrica’s richest man, Aliko Dangote, plans to launch Nigeria’s first private crude oil refinery by 2019 while almost doubling his cement production on the continent by adding plants in eight countries as he shrugs off a regional economic downturn.

Dangote told Reuters the $12 billion refinery would have a capacity of 650,000 barrels a day, cornering the market in Africa’s most populous country, where fuel shortages are a perennial problem.

Until recently, Nigeria was Africa’s biggest crude oil producer but it imports 80% of its fuel because poor maintenance means its four refineries never reach full output.

Its current daily consumption is 260,000 barrels, according to the International Energy Agency.

A slump in commodity prices has hammered Nigeria’s economy – along with many others on the continent – and raised the cost of borrowing but Dangote, whose business empire stretches from cement to flour and pasta, is pushing hard into oil and gas.

“It will be ready in the first quarter of 2019,” the billionaire founder of Dangote Cement said of the refinery. “Mechanical completion will be end of 2018 but we will start producing in 2019.”

Dangote said the plant, which will include a $2 billion fertilizer unit, was being funded through “loans, export credit agencies and our own equity”.

Some $3.25 billion had come from local and foreign banks, while the central bank had also chipped in. The IFC, the private sector arm of the World Bank, has lent $150 million.

Dangote also has plans for a gas pipeline through West Africa. Nigeria has the world’s ninth largest proven gas reserves, at 187 trillion cubic feet (tcf), but loses half of it to flaring and re-injection.

Despite the new focus on oil and gas, the business magnate said he planned to build cement plants in Cameroon, Ethiopia, Kenya, Mali, Niger, Nigeria, Senegal and Zambia by 2018. Another plant will open in Congo Republic by September, he added.

A cement plant in Ivory Coast would triple output to 3 million tonnes, up from an initial target of 1 million, he said, while two new plants in Nigeria would add 6 million tonnes annually.

“As at now, what we have in operation is almost about 45 million tonnes, so we have just another 40 million tonnes to go,” he said, affirming an Africa-wide production target of 85 million tonnes a year by 2018.


Nigerian Interbank Rates Rise On Treasury Bills Sales

naira-notesNigeria interbank lending rates rose 3.25 percentage points week-on-week on Friday to 9.25 points on average, driven by large treasury bills sold at both primary and secondary market by the central bank, which soaked up liquidity from the system.

The Central Bank of Nigeria (CBN) sold about N250 billion ($1.26 billion) in the open market operations bills and N150.6 billion worth at an auction on Wednesday.

“The market has been very liquid from the spillover from budget allocations and large matured bonds two weeks ago, but the outflows to fresh treasury bills sales drained some liquidity and caused rates to rise on Friday,” one dealer told Reuters News Agency.

Nigerian interbank lending rates dropped below 10 percent three weeks ago, their lowest this year, because of a liquidity boost from a large cash injection into the banking system from retired bonds, treasury bills and budget allocations to government agencies.

Banks had a balance at the CBN of N494 billion on Friday compared with over N840 billion on Monday, traders said.

The secured Open Buy Back rose to 9 percent from 6 percent, 4 percentage points below the CBN’s 13 percent benchmark rate.

Overnight placement rose to 9.5 percent against 6 percent last week.

“We expect little change in lending rates next … week, unless CBN embark on aggressive mopping up of liquidity” to reduce excess cash in the system, another dealer said.

Naira firms on increased dollar flows

Naira strengthened against the U.S. dollar on the interbank market on Monday, supported by dollar sales by some local units of foreign banks selling to stay within their stipulated open position limits.

The local currency closed at 157.90 to the dollar, the same level it was at last Wednesday and firmer than the 158.35 it closed at on Friday.

“Some foreign banks sold dollars in the market today, possibly from the inflows they got from their offshore clients and this helped strengthened the naira value,” one dealer said.

The Naira has been trading within the band of 157-158 to the dollar since the Central Bank of Nigeria CBN introduced a tighter measures to control Naira liquidity in the system and a rising offshore interest in local debt on the expected inclusion of Nigeria’s debt in JP Morgan’s emerging markets government bond index from October.

The apex bank in July raised the cash reserve requirement for lenders to 12 percent from 8 percent, and reduced net open foreign exchange positions to 1 percent from 3 percent, to restrict the money supply and support the currency.

The bank also barred banks that borrow Naira funds from its official window from using those funds to buy dollars at its bi-weekly auction, in a bid to crack down on currency speculation.

JP Morgan said two weeks ago that it plans to include Nigeria in its Government Bond Index – Emerging Markets (GBI-EM) from October, potentially bringing up to $1 billion into one of Africa’s most developed debt markets.

At the bi-weekly foreign exchange auction, the CBN sold $250 million at 155.80 naira to the dollar, compared with $120 million sold at the same rate last Wednesday.

Dealers said the Naira will continue to hover around the present band because of expected dollar sales by some oil companies to meet their month-end local currency obligations.

Nigeria bond yields rise on inflation worries

Yields on Nigeria bonds and treasury bills rose across all maturities on Thursday after a pick up in inflation in Africa’s second-biggest economy, dealers said, prompting investors to hold positions ahead of next week’s rate decision.

Nigeria’s central bank will hold its rate setting meetings next Tuesday and analysts expect the bank to keep interest rates on hold at 12 percent, despite an uptick in inflation.

Bond and treasury bill yields have adjusted upwards, rising between 20 and 100 basis points, dealers said, after April inflation climbed to 12.9 percent, year on year, from 12.1 percent in March.

Successive hikes in interest rates by the central bank had spurred a sustained rally in bonds, but Tuesday’s inflation data reversed some of those gains, traders said.

The shortest 3-year bond inched up to 15.4 percent on higher inflation, from 15.1 percent, while longer tenor 20-year paper was unchanged at 14.39 percent.

Prior to the release of inflation, the 5-year bond was yielding 15.05 percent, but had now gone up to 15.36 percent, one dealer told Reuters, adding that next week’s rate decision was going to be key for bond yields.

“We are waiting to figure out what the central bank will do. Will they react to the trends in the rise in inflation? So far, investors have priced in a hold decision for rates,” he said.

Nigeria auctioned 35 billion naira worth of 5-year bonds maturing in 2017 on Wednesday at a yield of 15.24 percent, compared with 15.1 percent at its last auction in April.

“The market and central bank are both anticipating a peak in inflation of around 14.5 percent y-o-y in Q3. This mitigates the possibility of an unexpected hike in policy rates … or a significant sell-off in bonds,” Samir Gadio, emerging market strategist at Standard Bank, wrote in a note to clients.

Domestic pension funds, the largest buyers of Nigeria government debt, have switched from relatively poorly performing equities over the last year into fixed income.

Dividend yields for equities are around 8 percent. Dealers say foreign investors have been attracted Nigerian bond yields but worries over liquidity naira stability mean they have stuck with short term one-year treasury bills yielding around 14 percent.

The naira on Wednesday fell to its lowest level in two months against the U.S dollar on the interbank market, on strong dollar demand.

“The currency will continue to be important for the overall inflation outlook, and in the very recent past we’ve seen what may possibly be temporary pressures on the back of the euro area crisis,” said Razia Khan, head of Africa research at Standard Chartered Bank.


Nigerian naira strengthens on adequate dollar supply

Nigerian naira strengthened against the U.S dollar on both the interbank market and official window on Wednesday, supported by large dollar inflows from oil companies and offshore investors. 

The local currency closed at 157.40 to the dollar on the interbank, firmer than the 157.50 to the dollar it closed on Tuesday.

Traders said local units of Chevron sold $70 million on Tuesday, while Total sold $6 million and Addax sold $10 million on Wednesday.

“There are some dollar inflows from offshore investors interested in this week’s treasury bills auction, while weak demand has also helped keep rates down,” one dealer said.

On the bi-weekly foreign exchange auction, the central bank sold $150 million at 155.80 to the dollar, compared with $150 million at 155.90 to the dollar at last Wednesday’s auction.

“We are expecting a gradual appreciation of the naira in the coming days because of the increase dollar inflows and weak demand at interbank and official window,” another dealer said.

Nigeria plans to auction 183.64 billion naira in 91-, 182- and 364-day treasury bills at an auction on Wednesday, which was expected to attract more offshore participation and increase dollar inflows into the economy.