Naira Crawling Peg?

Naira Crawling Peg?

Proshare Nigeria Pvt. Ltd. The Central Bank of Nigeria (CBN) follows a managed exchange rate policy, but is it moving towards a crawling peg? Last year saw several changes in the CBN’s official rate, and smaller (though significant) changes in Naira exchange rates quoted by FMDQ, Nigeria’s over-the-counter (OTC) exchange. Moves recorded in the last trading sessions of 2020 brought the Importers & Exporters Window (I&E Window) to N410.25/US$1. This goes some way to narrowing the gap – now less than 15.0% – between the OTC currency market and the cash parallel exchange rate, and goes some way to addressing the World Bank’s criticisms of multiple exchange rates. This suggests that there may be more step-changes in Naira/US dollar in 2021.

FX

Last week the exchange rate in the NAFEX rate weakened by 1.96% to N400.33/US$1 on Thursday, 31 December. In the parallel, or street market, the Naira depreciated by 1.08% to close at N470.00/US$1. The CBN also resumed forex cash sales to Bureaux de Change (BDC) operators to boost liquidity and ease demand pressure over the holidays.

Bonds & T-bills

Last week, the secondary market yield for an FGN Naira bond with 10 years to maturity rose by 68 basis points (bps) to 7.26% and at 7 years rose by 92bps to 6.50% while at 3 years the yield declined by 6bps to 3.54%. The annualized yield on a 301-day T-bill rose by 2bps to 0.65%, while the yield on a 299-day OMO bill remained 0.92%. We do not expect a significant change in current market sentiment over the coming weeks.

Oil

The price of Brent crude rose by 0.99% last week to US$51.80/bbl on Thursday 31 December. The average price in 2020 was US$43.22 /bbl, 32.67% lower than the average of US$64.20 /bbl in 2019. The increase is fueled by vaccine optimism, a weak US dollar and a rebound in manufacturing activity in Asia. Members of the Organization of the Petroleum Exporting Countries and Russia (OPEC+) were reported to have complied with previously-scheduled cuts . The group is scheduled to meet on today, 4 January to discuss output in February and beyond. We expect the group to consider increasing production levels at the upcoming meeting by 500,000 bpd.

Equities

The Nigerian Stock Exchange All-Share Index (NSE-ASI) rose by 3.79% last week with a gain of 50.03% in 2020 to close at 40,270.72, surpassing the 40,000 mark. Sustained […]

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