EXCHANGE RATE: Naira faces devaluation this week •As CBN unfolds plans for cashless policy in Lagos

THERE is a strong indication that the naira will depreciate this week because of uncertainty over a Central Bank of Nigeria (CBN) review of its target band for the currency. The CBN governor, Mallam Lamido Sanusi, had said last week that the apex bank would review its framework in the next few days.
CBN has been trying to keep the naira in a +/- three per cent band around N150 to the dollar. Depending on where the exchange rate settles, it may move the midpoint to 155/156 to the dollar, it said.
Traders at the interbank market said sentiment favoured further depreciation in view of the new thinking in the apex bank.
“There is a lot of uncertainty in the market, considering the new thinking by the Central Bank on reviewing the present target band upward,” one trader said.
Meanwhile, interbank lending rate fell on Friday to an average of 14.83 per cent after it initially rose to a multi-year record high of 16 per cent on Thursday due to tight liquidity in the system.
Traders said a portion of the September budgetary allocations hit the system on Friday, providing liquidity and helped cost of borrowing among banks to recede.
“About N337 billion budget allocation for the month of September hit the system today, helping to provide liquidity in the market,” one dealer said.
Tight liquidity due to initial delay in the release of the budget funds caused acute cash shortage in the system in the week and forced some lenders to discount their AMCON held bonds for cash at the Central Bank to help fund their operations.
Traders said the secured Open Buy Back (OBB) was unchanged at 14 per cent, from 12 per cent last week, 200 basis points above the Central Bank’s 12 per cent benchmark rate and 400 basis points above the Standing Deposit Facility (SDF) rate. But the overnight placement fell to 15 per cent, from 17 per cent on Thursday, while call money dropped to 15.50 per cent, from 17.25 per cent.

“Though the market opened on Friday with a cash balance of N14 billion, the inflows of additional N337 billion from budget allocations credited the system today helped to push down lending rates,” one senior treasurer said.
The disbursement of budgetary allocations from September oil revenues to the three tiers of government was due in the second week of October, but was held up by what traders said was a row between the federal and state governments.
The funds were released on Wednesday, while actual inflows hit the accounts of some banks on Friday, helping to ease pressure in the interbank market for short-term borrowing among lenders.
Traders said rates might inch up gradually next week, because of the aggressive liquidity mop-up exercise by the CBN in its efforts to curb excess liquidity in the system and rein in demand for the US dollar.
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