SAT, 28 NOV, 2020-theGBJournal- Nigeria’s FX reserves declined by USD40.05 million w/w to USD35.45 billion, as the outflows for the CBN’s interventions across the various FX windows continue to outstrip dollar inflows.
At the I&E window, the naira weakened to its lowest level against the dollar since the introduction of the window in 2017, falling 1.1% w/w to NGN390.25/USD, as the CBN’s supply in the space remained low.
Similarly, the naira hit record lows in the parallel market, falling by 2.2% to NGN495.00/USD as lack of access to forex at the official windows has funneled demand to the parallel market.
This also followed recent comments by the CBN governor saying that the parallel market makes up only 5.0% of the overall FX market and should not be used to determine the naira’s true value. Year-to-Date, the naira is down by 6.6% and 26.9% at the IEW and in the parallel market, respectively.
In the same vein, the naira weakened across the 1-month (-1.2% to NGN390.28/USD), 3-month (-1.1% to NGN390.38/USD), 6-month (-1.1% to NGN390.57/USD) and 1-year (-0.9% to NGN391.44/USD) forward contracts.
Going forward, we expect CBN’s FX management strategies to continue supporting the naira at its current level at the official and I&E windows. However, we believe the parallel market rate will remain volatile and continue to trade above the CBN’s Relative Purchasing Power Parity (RPPP) of NGN433.64/USD and our REER fair value estimate of NGN453.67/USD at the current level of intervention in the FX market.-with Cordros Research.
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