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Naira to depreciate further in parallel market

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By Babajide Komolafe

The sharp depreciation of the naira in the parallel market is set to continue this week with the exchange rate projected to hit N470 per dollar.

Last week, the naira depreciated by N9 or 1.9 percent to N467 per dollar in the parallel market from N458 the previous week.

The sharp depreciation is driven by acute dollar shortage in the market following the 13 weeks suspension of dollar sales to Bureaux De Change (BDC) by the Central Bank of Nigeria (CBN) since March 20, 2020. The situation was aggravated by the 5.5 per cent official depreciation of the naira to N380 per dollar in the official market last week by the apex bank in its bid to unify the official market and the Investors and Exporters (I&E) window exchange rates, a move analysts said could heighten speculation of further devaluation.

The naira also depreciated in the I&E window last weekend by 67 kobo as the indicative exchange rate rose to N387 per dollar on Friday from N386.33 per dollar the previous week.

This trend, according to analysts will persist in the coming days, driven by continued scarcity of the dollar and declining external reserves.

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The external reserves declined further by $28 million to $36.133 billion on Thursday July 9th 2020, from $36.161 billion on Thursday July 2nd 2020.

Nevertheless, analysts at Cowry Assets Management Limited said: “We commend moves by the monetary authority to unify the exchange rates in line with the autonomous foreign exchange rate.

“However, we may see further depreciation of the Naira against the dollar  in the new week if market players interpret the devaluation of the official rate as a sign of short-term dollar scarcity.”

Making similar projections, analysts at Cordros Securities Limited, said: “Despite the CBN’s stronger commitment towards exchange rate unification, we still see legroom for the currency to depreciate further, at least towards its Real Effective Exchange Rate (REER) derived fair value.

 

 

“Our prognosis is hinged on:  the widening current account (CA) position;  currency mispricing, which could induce speculative attacks on the naira; and  the resumption of foreign exchange sales  to the BDC segment of the market which should place an additional layer of pressure on the reserves as the CBN funds the backlog of unmet foreign exchange  demand.”

Vanguard

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