Naira Weakens to N1,380.58/$ Amid Global Tensions and High FX Demand
The Nigerian naira has continued its downward trend, weakening to N1,380.58 per dollar at the official market. This represents a decline of 1.93 per cent week-on-week, as sustained foreign exchange demand significantly outpaces available supply. The pressure in the foreign exchange market intensified last week, with the naira also depreciating by 2.66 per cent at the parallel market, closing at an average of N1,393 per dollar.
Drivers of Naira Depreciation
The weakness of the naira is largely driven by increased demand for dollars, primarily for international settlements and import-related obligations. This heightened demand is further straining the already limited foreign exchange supply, creating a challenging environment for currency stability. Analysts note that while elevated oil prices could offer some short-term relief, persistent FX demand and declining reserves may keep the naira under pressure in the near term, with expectations of the currency trading within a volatile band.
Global Commodities and Geopolitical Factors
On the global commodities front, crude oil prices have rallied strongly, with futures climbing above $98 per barrel. This surge is amid heightened geopolitical tensions involving the United States, Israel, and Iran. Despite the rise in oil prices, Nigeria's external reserves recorded a marginal decline, falling by 0.7 per cent to $49.48 billion. This reflects a depletion of approximately $350 million and signals continued pressure on the country's foreign exchange buffer.
Money Market Dynamics
In the money market, liquidity conditions remained robust but moderated compared to the previous week. System liquidity closed at a net surplus of N5.93 trillion, down from N8.24 trillion, following outflows linked to settlements from recent auctions conducted by the Central Bank of Nigeria (CBN). Interbank rates reflected mixed movements amid these liquidity dynamics.
The Nigerian Interbank Offered Rate (NIBOR) trended downward during the week, supported by inflows from N800 billion in maturing open market operation (OMO) bills. However, offsetting debits from OMO and treasury bills settlements kept the overnight NIBOR unchanged at 22.38 per cent. The overnight rate edged up slightly by five basis points to 22.26 per cent, while the funding rate held steady at 22.00 per cent.
Treasury Bills Market Activity
In the treasury bills market, yields were largely mixed. The Nigerian treasury bills true yield (NITTY) curve edged higher across most short- and mid-term tenors, with yields on the 1-month, three-month, and six-month instruments rising by five basis points, 32 basis points, and seven basis points, respectively. However, the 12-month yield declined by 34 basis points, reflecting stronger investor demand for longer-dated instruments.
Activity in the secondary market remained subdued, although selective demand at the mid- to long-end supported prices, resulting in a 19 basis points decline in average yield to 17.76 per cent week-on-week. At the treasury bills primary market auction, investor appetite remained exceptionally strong. The CBN offered N400 billion, but total subscriptions surged to N3.1 trillion, with allotments rising to N693 billion. Stop rates showed mild easing, with the 91-day rate unchanged at 15.95 per cent, while the 182-day and 364-day rates declined to 16.42 per cent and 16.43 per cent, respectively.
