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Analysts expect CBN to devalue investors FX rate past ₦425/USD

Analysts at Chapel Hill Denham, a leading investment banking firm headquartered in Lagos, are expecting the Nigeria’s central bank to weaken naira rate at the Investors and Exporters Window (IEW) above ₦425 to a dollar in 2021.

The Nigeria’s local currency, Naira, has lost significant value down the year in 2020 due to multiple issues that faced the economy.

Last week, naira to dollar foreign exchange rate remained unchanged at ₦379.00 and ₦380.69 at the official and secondary market intervention sales windows, respectively.

However, the naira recorded a significant depreciation of 4.45% (-₦18.25) to ₦410.25 at the I&E window.

In its macro note, analysts said the average daily turnover in the I&E Window rose by 31.8% week on week to US$176.59 million.

Despite the increase, analysts stated this is still significantly lower that than Q1-20 levels of US$350 million daily average.

“We note that the naira traded at its year to date lowest of ₦412.05 last Thursday at the I&E window, before closing the year at ₦410.25”, Chapel Hill Denham said.

In the parallel market, the naira remained under pressure, falling by 1.05% (₦5.00) to ₦470.00.

Analysts recalled that in 2020, the naira depreciated across all segments of the currency market.

At the official window, the naira fell by 19.0% year on year (-₦72.00) to ₦379.00 (from ₦307 as at 31 December 2019).

In the I&E window, the naira declined by 11.1% year on year (-₦45.74) to ₦410.25 as against ₦364.51 as at 31 December 2019.

Notably, analysts said the most significant pressure on the naira was in the parallel market window, where it weakened by 23.0% year on year (-₦108.00) to ₦470.00 (from ₦362.00 as at 31 December 2019).

Analysts said pressure on the naira in 2020 was linked to a combination of: low oil prices and production for Nigeria.

This also include pressures on Nigeria’s balance of payment prices and weakening foreign exchange reserves which limited the CBN’s ability to defend the naira.

“We think further adjustments are needed in 2021 for liquidity to return to the I&E Window.

“At the minimum, we expect the CBN to weaken the I&E Window rate past ₦425 in 2021”, Chapel said.

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