CBN adjusts exchange rate peg again

CBN Governor, Godwin Emefiele

Oyetunji Abioye with agency report

The Central Bank of Nigeria weakened its exchange rate peg to N197 against the dollar on the interbank market on Friday, down from N196.97, Reuters reported quoting foreign exchange dealers.

Traders said the regulator set the new rate for market closing price on Thursday, making this the 11th adjustment since the bank introduced tight currency controls in February.

The CBN has resorted to adjusting the rate on the local currency since pegging it to the dollar in February and abolishing two-way naira quotes to help conserve forex reserves.

Traders said the present method of exchange rate fixing had led to an erosion of the nation’s external reserves, which stood at $30.13bn as of October 27, down from $30.38bn a month earlier.

The central bank has resisted calls to further devalue the naira in the face of a plunge in vital oil revenues. But the bank has continued to intervene periodically to provide forex liquidity support for the local currency.

It also sells dollars twice-weekly to bureau de change operators as part of efforts to support the naira and narrow the gap between the official and parallel foreign exchange markets.

Yields on Nigeria’s local currency denominated bonds are expected to rise this week as offshore investors and some local investors sell holdings.

“We are anticipating a massive sell off this week from some offshore investors still holding their positions in the market,” one dealer said, adding some local pension funds could follow suit.

JP Morgan is expected to remove Nigerian bonds from its Emerging Market Government Bond Index by the end of October, prompting the shift out.

Yields on the benchmark 2024 paper dropped to 13.49 per cent on Friday from 13.60 per cent the previous week, but are seen rising above 14 per cent level this week.

“A sell-off either by the remaining offshore investors in the market or pension funds ahead of the auction on November 11, would lead to increased yields in the near term,” a senior treasurer said.

Meanwhile, yields on Kenyan Treasury bills are likely to dip again next week, while rates on Nigerians paper were expected to rise as offshore investors sell.

Yields on Kenyan T-bills are likely to slip this week, with extra shilling liquidity chasing the instruments and the central bank sending what traders saw as a signal that it would not accept the high rates seen earlier this month.