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UPDATE 2-Nigerian naira forwards at one-month high despite Treasury yields rise

· 02/05/2021 07:53
UPDATE 2-Nigerian naira forwards at one-month high despite Treasury yields rise

Adds analyst comment

By Chijioke Ohuocha

- The U.S. dollar firmed to a one-month high against the Nigerian naira in non-deliverable forwards markets on Friday, even though the Nigerian central bank almost doubled open-market Treasury yields at an auction a day earlier.

The bank on Thursday sold one-year bills at 11.22%, up from 6.1% at its previous auction in January. Prior to the two auctions, the secondary market was trading at close to zero last year, as foreign investors exited local assets.

Yields in Nigeria have been at historic lows since two interest rate cuts last year and an increase in liquidity on the money markets to try to reflate an economy suffering from its second recession in five years.

"These developments are signalling that the central bank may allow the NAFEX (spot market) rate to rise further - which has started to materialise - possibly to levels close to one-month futures prices," said Samir Gadio, head of Africa strategy at Standard Chartered Bank.

The central bank this week revised its futures contracts upwards, to try to reduce pressure on the naira, which has been hit hard by the coronavirus-induced plunge in the price of oil, Nigeria's key currency earner.

On the non-deliverable forwards market, the one-month dollar/naira NGN1MNDFOR= stood at 411.25 points, up from Thursday's close of 408, Refinitiv data showed. The naira forward had been quoted at a high of 415 in January.

The currency has been losing ground on the derivatives market, mirroring weaknesses on the black market, where the naira trades more freely.

It dropped to a record intra-day low on the spot market this week and quoted at 480 naira on the black market, against the official rate of 381 naira, set in July and backed by the central bank.

"Can portfolio flows resume at these new OMO bill yields, assuming a move higher in the exchange rate towards 410 or so? Probably not yet as non-residents will require higher returns," Gadio said.

(Reporting by Chijioke Ohuocha; Editing by Kevin Liffey)

((chijioke.ohuocha@thomsonreuters.com; +234 703 4180 621; Reuters Messaging: chijioke.ohuocha.thomsonreuters@reuters.net))