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United Capital, a financial and Investment Services Company, has disclosed that the Central Bank of Nigeria (CBN) may harmonise the multiple exchange rate systems operating currently in the country.

This is contained in the report recently released by the firm on Nigeria’s economic outlook in 2020. The firm stated that the CBN will continue to introduce several measures to stabilize the naira as devaluation concerns grow.

No devaluation, but CBN may harmonise Exchange Rate

According to United Capital, despite the growing concern about an impending devaluation of the naira, a currency devaluation in Nigeria is unlikely in 2020. Meanwhile, the firm stated that the CBN is likely to harmonize both official exchange rate/interbank (N305.5/$1) and the rate operational at the Investors & Exporters (I&E) windows (N360/$1).

It stated, “In our opinion, while a currency devaluation is unlikely in the immediate-term, there is a possibility for the harmonization of the official rate from N305.5/$1 to something very close to the I&E window rate of N360.0/$1, in the medium term. Hence, the adjustment may not really affect the market rate by more than a spread of 2% to 5% to the official rate“

The firm, also stated that the CBN will continue to support the naira at N360-N365/$1 levels, by selling OMO bills to Foreign Portfolio Investors (FPIs) as a strategy to preserve the reserves at decent levels.

Meanwhile, the debate regarding Nigeria’s exchange rate system remains inconclusive, as the CBN continues to reiterate that the country does not run a multiple exchange rate system.

The World Bank recently stated that the growth of the Nigerian economy in 2020 is expected to remain subdued due to the macroeconomic framework characterised by multiple exchange rates, foreign exchange restrictions and high persistent inflation.

CBN to sustain OMO policy to build buffer 

While forecasting the flows of capital in Nigeria in 2020, United Capital stated that CBN is likely to sustain its OMO sale to foreign portfolio investors (FPIs) in support of the country’s reserves. According to the firm, this may keep FPIs interest dominant in money market funds at the expense of equity flows.

Standard chartered

“On capital flows, no significant change is expected in the current dynamics. More specifically, the CBN is likely to sustain its OMO sale to FPIs in support of the reserves. This may keep FPIs interest dominant in money market funds at the expense of equity flows.

“Notably, we expect an upsurge in Loans & Other Claims to continue, given the low interest rate environment in the international debt market. However, Foreign Direct Investment (FDI) flow may remain broadly muted.”

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Capital market in 2020

On the other hand, investors in the capital market face tepid year. According to the firm, in 2020, the capital market is expected to be a different playing field. United Capital stated that the fixed income market will be a corporate/ private issuer market due to the buoyant level liquidity and the low yield environment.


The firm also disclosed that yields on FGN T-bills are projected to stay in the mid-to-high single-digit levels and Bonds yields at low double-digit levels, especially in H1-20. Hence, interest in riskier assets (mostly corporate papers) will increase.

“The rate on OMO bills (solely for FPIs and Banks) are unlikely to witness significant changes, as the CBN continues to deploy its set of unconventional policy tools to attract FPIs and limit an impending dollar outflow in Q1-20 while preserving the stock of reserves above the $30.0 billion threshold. Overall, we expect the sovereign yield curve to remain normal in H1-20. However, this may reverse to a hump-shaped curve from Q3-20.

“For equities, the continued auction of high yield OMO bills to FPIs may keep foreign interest in local equity market tepid amid fears of a naira devaluation and confidence deficit in the economy.”

In all, from all indications, United Capital is optimistic that the only justification for an uptick in the equity market is the lower yield environment, supported by increased local currency liquidity. “However, this will not be enough to trigger a major rally in the absence of the demand from FPIs,” it added.





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