Parallel market rate and the FX window to converge towards the official rate in 2021 â€“ United Capital report - NAIRAMETRICS
According to a recent report, the exchange rates at the parallel market and the I&E FX window are expected to converge in 2021.
United Capital Plc has stated that it expects a convergence between parallel market rate and the I&E FX window in 2021, which is contingent on repetition of history as well as CBNâ€™s intervention in parallel market activities.
This is contained in a recent report by the company: Nigeria Outlook 2021 — A Shot at Recovery.
According to the company,
- â€œThe fact is that the Nigerian economy has been here before, in 2016, when the parallel market rate climbed as high as N500/$1 but converged to N360/$1 after the I&E window was introduced.â€
Informed by this, the company believes history and regulation will result in a possible appreciation from the parallel market rates of N470/$1 -N500/$1 towards the official rate.
As regards the official rate, the company submits that its projection is that the official rate should find its level around N400/$1-N415/$1 in 2021 — thus expecting the parallel market rate and I&E window to also be around N400/$1-N415/$1 this year.
What they are saying
According to the report,
- â€œIf the past is any indication of the future, we think an additional 6% -10% currency adjustment (to bring the official rate to roughly N400-N415/$1) will be needed to structurally rebalance the current account by year-end or Q1-2021. Other upside factors that may support the market includes recent $1.5bn inflow from the World Bank, the proposed bilateral facilities expected from Brazil and a possible Eurobond issuances in 2021.â€
- â€œIn spite of the projected decline in diaspora remittances, we are of the view that the move to allow recipients of diaspora remittances through the International Monetary Transfer Operators (IMTO) have inflows in foreign currency through the designated bank of their choice, will help improve liquidity in the system, and help reduce the pressure on parallel market rate going forward.â€
United Capital Plc expects these to significantly improve the CBNâ€™s ability to defend the currency at N400/$1-N415/$1.
What you should know
As of yesterday:
- The CBN official rate stood at N380/$1.
- The parallel market rate closed at N470/$1.
- The I&E FX window opened at N392.69/$1 and closed at N394.67/$1.