SAT 27 FEB, 2021-theGBJournal- Nigeria’s FX reserves dipped by USD196.11 million w/w to USD35.23 billion (23rd February 2021), as the outflows from the reserves outstripped inflows.
The naira weakened by 0.1% to NGN410.25/USD at the I&E window and by 0.8% to NGN482.00/USD in the parallel market. At the I&E window, total turnover (as of 25th February 2021) increased by 89.2% WTD to USD432.34 million, with trades consummated within the NGN382.00 – 429.75/USD band.
In the Forwards market, the rate weakened across the 1-month (-0.3% to NGN415.01/USD), 6-month (-0.1% to NGN429.80/USD) and 1-year (-0.1% to NGN443.52/USD) contracts, but was flat in the 3-month (-1.4% to NGN421.12/USD) contract.
Given the expected pressure on the external reserves amid weak portfolio inflows, we expect the naira to depreciate closer to its fair value implied by the long-run REER (NGN453.67) in the medium term.
Our baseline expectation is that the CBN will devalue the naira by 5.3% to NGN400/USD in the interbank market and 5.1% to NGN415/USD at the IEW.-With Cordros Research