Thursday, February 25, 2021 /03:00 AM / By Proshare Research/ Header Image Credit: EcoGraphics
On the currency front, thedollar will most likely continue its bearish trend which started at the tailend of 2020, as global recovery proceeds with the continuous production andapproval of vaccines and quantitative easing by major economies, the dollarwill likely gain strength between Q2 and Q3 2021. There will be a positive appetitefor risky currencies especially currencies of Emerging markets, which willlikely trend upwards if the current momentum of recovery is sustained, however,a lockdown because of the further spread in the new strain of the coronaviruswill reverse the outlook.
For the domestic economy,in 2020 the CBN adjusted/devalued the Naira on three occasions to ease thepressure on the domestic currency and to reduce the gap between official ratesand parallel rates as this was one of the conditions needed to be met toreceive the World Bank. However, lower FX earnings widened the gap between thetwo markets. The decline in FX inflows also put pressure on the foreignreserves, as of 30 December 2020 foreign reserves had declined by -8.25% YTD. Data released by the CBN showed that as ofQ3 2020, the CBN had injected $4.37bn into the foreign exchange market as partof its efforts to ensure the stability of the Naira, this is expected tocontinue in 2021.
Although the inflow offoreign loans and a slight uptick in oil prices managed to ensure some level ofstability of the foreign reserves, this approach is not sustainable in thelong-term. A longer-term solution could be to improve the development andgrowth of non-oil exports, the boosting of non-oil exports would help todiversify FX earnings (see table 66 below).
Table 66: Monthly Average Exchange Rate
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Downloadable PDF - The 2020 Nigerian Capital Market Report
1. Complete Report: The Nigerian Capital Market Report 2020: Leveraging a Crisis - Jan 28, 2021
2. Executive Summary: The Nigerian Capital Market Report 2020: Leveraging a Crisis - Jan 28, 2021
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1. The November 2020 Nigerian Capital Market Service Report - Proshare
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5. The July 2020 Nigerian Capital Market Service Report - Proshare
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7. The May 2020 Nigerian Capital Market Service Report - Proshare
8. The April 2020 Nigerian Capital Market Service Report - Proshare
9. The March 2020 Nigerian Capital Market Service Report - Proshare
10. The February 2020 Nigerian Capital Market Service Report - Proshare
11. The January 2020 Nigerian Capital Market Service Report - Proshare
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