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Naira Depreciated To N370-$ Mid-August in the Parallel Market

Forex
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Wednesday, September 20, 2017 / 3:30 PM /FDC

Exchange Rate
The Naira depreciated to N370/$ mid-August in the parallel market as robust demand from users such as hajj pilgrimage and school fees weighed on the naira. The exchange rate however strengthened to N365/$ as at August 31st, the same level it closed at in July. The interbank market rate depreciated slightly by 0.08% to close at N306.35/$, compared to July’s close of N306.10/$. The spread between the parallel and interbank market rates has narrowed to N58.65 from N58.9 in the previous month. The IEFX rate appreciated by 2.23% to close at N359.67/$, compared to last month’s close of N367.88/$. An average turnover of $3.86bn was traded at the IEFX window in August month, higher than the average of $2.26bn in July. The IATA rate was adjusted twice from N306/$ to N325/$ and then to N359/$ early September.

As at September 15th, the naira depreciated by 0.54% in the parallel market to N369/$. The interbank market rate moved in the same direction with the parallel rate, depreciating marginally by 0.03% to close at N306.45/$.




Outlook
At the parallel market, we expect that strong demand pressure will weigh on the naira as manufacturers have begun opening letters of credit in preparation for the festive period. However, this is conditioned on the CBN’s frequency of FX market injections. We expect the CBN to continue to intervene aggressively in the market.

External Reserves
The bullish global oil market and stable production levels contributed to the upward trend in the gross external reserves level. Nigeria’s gross external reserves increased by 3.14% ($970mn) to $31.81bn from July’s level of $30.84bn. The gross external reserves import and payment cover is now at 8.81 months, compared to July’s level of 6.89 months.



Outlook
Accretion in the external reserves level depends largely on stable oil production in Nigeria and the global oil market. We expect external reserves to increase in the month of September. However, due to OPEC’s production cap on Nigeria’s output at 1.8mbpd, production is expected to remain flat in the coming months which could affect Nigeria’s external reserves negatively. In addition, if the demand for dollars picks up and the CBN intensifies its intervention, this may slow down the pace of accretion.




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