SAT 06 FEB, 2021-theGBJournal- Nigeria’s FX reserves recorded its first weekly decline of the year, as it dipped by USD104.79 million w/w to USD36.20 billion (1st February 2021). Across the FX windows, the naira weakened against the US dollar by 0.5% to NGN396.17/USD at the I&E window but was flat at NGN480.00/USD in the parallel market.
At the I&E window, total turnover (as at 4th February 2021) decreased by 23.4% WTD to US$200.42 million, with most trades consummated within the NGN388.00 – 416.95/USD band.
In the Forwards market, the rate weakened across the 1-month (-1.4% to NGN405.62/USD) contract, 3-month (-2.1% to NGN416.27/USD), 6-month (-2.0% to NGN427.30/USD) and 1-year (-2.0% to NGN445.65/USD) contracts.
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 depreciate the naira by 5.3% to NGN400/USD in the interbank market and 5.1% to NGN415/USD at the IEW.-With Cordros Research