SAT 13 FEB, 2021-theGBJournal- Nigeria’s FX reserves sustained its descent, as it dipped by USD153.60 million w/w to USD35.89 billion (9th February 2021).
Across the FX windows, the naira weakened against the US dollar by 2.1% to NGN404.67/USD at the I&E window but appreciated by 1.5% to NGN473.00/USD in the parallel market. At the I&E window, total turnover (as at 11th February 2021) decreased by 20.4% WTD to USD236.66 million, with most trades consummated within the NGN380.35 – 422.59/USD band.
In the Forwards market, the rate weakened in the 1-month (-0.6% to NGN407.85/USD) contract, but appreciated in the 3-month (+0.3% to NGN415.22/USD), 6-month (+0.5% to NGN425.19/USD) and 1-year (+0.8% to NGN441.93/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.