Nigeria FX reserves dip further $41.14bn

For the third consecutive week, Nigeria’s FX reserves nosedived by losing $102.58 million to close last week at $41.41 billion.

According to experts, the sustained downtrend may not be unconnected to falling prices of crude oil in the global market in previous weeks triggered by expectation of weaker demand and higher supply.

This has reduced proceeds from oil which constitute major contributor to the Nigerian foreign exchange earnings. Mr Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) had also explained that the depletion in the reserves is also due to sales of hard currency to FX market to defend naira, the local currency.

Meanwhile, the naira appreciated during the week by 0.2 per cent week-on-week to N414.40/$1 at the I&E window (IEW) but depreciated by 2.5 per cent to N554.00/$1 at the parallel market.

At the IEW, total turnover declined by 20.8 per cent week-on-week to $589.96 million, with trades consummated within the N386.00 – 453.75 per dollar band.

In the Forwards market, the 1-month (+0.1% toN415.57/USD), 3-month (+0.2% to N421.02/USD), 6-month (+0.2% to N430.06/USD) and 1-year (+0.1% to N447.00/USD) contracts reflected appreciations of the naira to the greenback.

Although the CBN has enough liquidity to support the market in the near term, experts feared that 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 naira-dollar peg closer to its fair value and flexibility in the exchange rate would be significant in attracting foreign inflows back to the market. Accordingly, we expect the CBN to devalue the IEW exchange rate over the short-to-medium term,” Analysts at Cordros Capital counseled.