SAT 30 JAN, 2021-theGBJournal- Nigeria’s FX reserves recorded its first weekly decline of the year, as it dipped by USD113.39 million w/w to USD36.40 billion (27th January 2021). Across the FX windows, the naira was flat against the US dollar at NGN394.13/USD at the I&E window but weakened by 0.6% to NGN480.00/USD in the parallel market.
At the I&E window, total turnover (as at 28th January 2021) decreased by 9.5% WTD to USD237.42 million, with most trades consummated within the NGN385.00 – 396.00/USD band.
In the Forwards market, the rate weakened across the 1-month (-0.4% to NGN399.85/USD) contract, 3-month (-0.4% to NGN407.41/USD), 6-month (-0.6% to NGN418.73/USD) and 1-year (-0.3% to NGN436.65/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.