SAT 27 NOV, 2021-theGBJournal- Nigeria’s FX reserve sustained its descent as the gross reserves closed lower by USD61.05 million w/w, to USD41.33 billion (24th November 2021).
Meanwhile, the naira depreciated by 0.2% w/w to NGN415.07/USD at the I&E window (IEW) and by 2.3% to NGN563.00/USD at the parallel market.
At the IEW, total turnover (as of 25th November 2021) increased by 19.2% WTD to USD783.39 million, with trades consummated within the NGN406.00 – 453.75/USD band. In the Forwards market, the 1-month (-0.1% to NGN415.94/USD), 3-month (-0.1% to NGN421.22/USD), 6-month (-0.1% to NGN430.36/USD) and 1-year (-0.2% to NGN448.01/USD) contracts reflected depreciations 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) is 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 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 over the short-to-medium term.
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