Contrary to the apprehensions over the fate of Naira at the backdrop of the ban of Bureau de Changes, BDCs, from the Central Bank of Nigeria’s foreign exchange sales window, the local currency firmed up from its initial losses to gaining N7.0 in the parallel market last week.
Analysts are projecting further appreciation of the national currency this week.
According to AbokiFX.Com, the parallel market exchange rate fell to N508 per dollar at the close of business on Friday from N515 per dollar the previous week, indicating N7 appreciation.
The naira similarly appreciated on naijabdcs.com of the Association of Bureaux De Change Operators of Nigeria (ABCON), where the parallel market exchange rate dropped to N509 per dollar on Friday from N515 per dollar the previous week.
This trend, according to analysts, will persist in the second half of the year, H1’21, due to a combination of factors including the expected accretion of the external reserves courtesy of the proposed $6.2 billion Eurobond issuance by the Federal Government as well as the additional $3.4 billion Special Drawing Rights (SDR) allocated to the country last week by the International Monetary Fund (IMF).
Projecting that the naira will appreciate towards N490-495 per dollar in the parallel market, Managing Director/Chief Executive, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said the IMF’s SDR of $3.35 billion and Eurobond issue of $3bn to boost dollar cash flow and support external reserves accretion.
Speaking at a monthly breakfast presentation at the Lagos Business School last week, Rewane said: “The naira has gained 3.24 per cent since it fell to N525 per dollar last week.
“Most pessimists were of the view that the naira was likely to plunge to N700 per dollar after the BDCs were stopped from buying dollars from the CBN.
“We continue to hold the view that the naira will continue to appreciate towards fair value (N470-N490/$) in the parallel market as long as the CBN increases forex supply. However, corporates remain nervous as to policy direction and uncertainty remains.
Making a similar projection, analysts at CardinalStone Research said: “In assessing the materiality of the recent developments, we note that the combined planned foreign borrowing of $6.2 billion and SDR allocation of $3.4 billion amount to c.68.1% of our 2021 current account deficit forecast and 28.7% of Nigeria’s FX reserves of c.$33.5 billion. Thus, there is a strong likelihood that the FX liquidity position of Nigeria will improve before the end of the year if these inflows materialise.
“The spread between the parallel market and the I&E rates is likely to materially narrow in the coming months. This narrowing spread should primarily reflect sharper corrections in the parallel market rate, which is currently substantially higher than our fundamentally derived NGN/USD rate. We also expect some retail demand to flow away from the BDCs to deposit money banks, which have been recently mandated to meet legitimate dollar needs”.