SAT 06 NOV, 2021- theGBJournal- Nigeria’s FX reserves snapped its ten consecutive weeks of accretion as it closed lower by USD102.20 million w/w, to USD41.73 billion (4th November 2021).
Meanwhile, the naira appreciated by 0.2% w/w apiece to NGN414.30/USD and NGN564.00/USD at the I&E window (IEW) and parallel market, respectively. At the IEW, total turnover (as of 4th November 2021) decreased by 38.9% WTD to USD486.13 million, with trades consummated within the NGN404.00 – 453.10/USD band. In the Forwards market, the 1-month (+0.1% to NGN416.07/USD), 3-month (+0.5% to NGN422.22/USD) and 6-month (+0.5% to NGN431.48/USD) contracts reflected appreciations of the naira to the greenback, while the 1-year (-0.9% to NGN450.72/USD) contract depreciated.
Although the CBN has enough liquidity to support the market in the near term, we think foreign inflows (53.8% of FX inflows to the IEW pre-pandemic) are paramount for sustained FX liquidity over the medium term given their level of importance in the IEW.
Hence, we think further adjustments in the NGN/USD peg closer to its fair value as implied by REER (NGN456.67/USD) and flexibility in the exchange rate would be significant in attracting foreign inflows back to the market. Accordingly, we expect the CBN to devalue the IEW exchange rate between NGN440.00/USD and NGN460.00/USD over the short-to-medium term.
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