SAT 13 NOV, 2021-theGBJournal- Nigeria’s FX reserve sustained its decline as the CBN stepped up its interventions in the FX market.
Thus, the gross reserves closed lower by USD167.67 million w/w, to USD41.53 billion (10th November 2021).
Meanwhile, the naira depreciated by 0.2% w/w to NGN415.10/USD at the I&E window (IEW) but appreciated by 4.4% to NGN540.00/USD at the parallel market. At the IEW, total turnover (as of 11th November 2021) increased by 15.8% WTD to USD654.38 million, with trades consummated within the NGN404.00 – 453.15/USD band.
In the Forwards market, the 1-month (+0.1% to NGN415.85/USD), 3-month (+0.1% to NGN421.86/USD), 6-month (+0.1% to NGN430.99/USD) and 1-year (+0.7% to NGN447.63/USD) contracts reflected appreciations of the naira to the greenback.
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 (1) further adjustments in the NGN/USD peg closer to its fair value as implied by REER (NGN456.67/USD) and (2) 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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