Jan 8 (Lagos) - Extending patterns since OB2WQ (Order based Two Way Quote) came into operation in February, inter-bank USD/NGN closed December largely unchanged from prior month ~N199/$, despite fresh fundamental concerns after oil prices weakened to 11 year low of $36.11/bbl during the month.
Nonetheless, on the heels of a 7pps MoM expansion to 22.8% in November, parallel market premiums to the inter-bank USDNGN widened further (+12pps MoM to 35.8%) leading the naira to close at another record low of N266/$ at the segment, and touching N280/$ in mid-December.
Naira deterioration reflects developments on several fronts, starting with continued implementation of CBN requirement to track BDC sales via BVN, which commenced in November. Further complicating dollar scarcity at the segment was CBN’s suspension of dollar sales to 56% of BDC operators following failure to file returns.
In addition, the apex bank began rationing dollar sales with preference for matured LCs, refined petroleum products and raw material imports. Coinciding with the holiday season when festive demand is high, these developments and annual closure of the CBN FX sales window drove unmet dollar demand at the inter-bank to the parallel market, with the pullback late in the month just a response stop-gap sales by the apex bank.
Despite the demand management and attendant unsavory effects, foreign reserves dropped 4.2% MoM to a 6-month low of $29.1billion to close 2015 16% below 2014 close.
Going forward, continued downdraft in oil prices which place Nigeria on track for the trade account deficit since 1998, should extend currency pressures. Nonetheless, as in 2015, fiscal opposition, as recently expressed by President Buhari in December’s media chat, should continue to drive CBN reluctance towards Naira devaluation. The likely outcome of further forex demand management implies an extension in trend of elevated parallel market premiums according to analysts at Asset & Resource Management Ltd in Ikoyi.
reporting for easykobo.com on Friday, Jan 8 2016 from Lagos, Nigeria
Source - Asset & Resource Management Ltd in Ikoyi
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