SAT 20 NOV, 2021-theGBJournal- Nigeria’s FX reserve declined for the third consecutive week as the gross reserves closed lower by USD102.58 million w/w, to USD41.41 billion (18th November 2021).
Meanwhile, the naira appreciated by 0.2% w/w to NGN414.40/USD at the I&E window (IEW) but depreciated by 2.5% to NGN554.00/USD at the parallel market.
At the IEW, total turnover (as of 18th November 2021) declined by 20.8% WTD to USD589.96 million, with trades consummated within the NGN386.00 – 453.75/USD band. In the Forwards market, the 1-month (+0.1% to NGN415.57/USD), 3-month (+0.2% to NGN421.02/USD), 6-month (+0.2% to NGN430.06/USD) and 1-year (+0.1% to NGN447.00/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) is 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 and (2) flexibility in the exchange rate would be significant in attracting foreign inflows back to the market.
Accordingly, we expect the Central Bank of Nigeria (CBN) to devalue the IEW exchange rate over the short-to-medium term.
Twitter-@theGBJournal|Facebook-The Government and Business Journal|email: govandbusinessj@gmail.com
