- Naira in delicate balance
Nigeria’s foreign exchange (forex) reserves dropped by $132.06 million at the weekend as the apex bank continued to use the forex reserves as a buffer against currency depreciation despite slowdown in forex inflows.
A report by investment banking group, Cordros Group, at the weekend indicated that Nigeria’s forex reserves declined during the week by $132.06 million to close the week at $34.84 billion.
Reports by several investment bankers, meanwhile, showed a largely stable naira. FSDH Group reported that naira closed flat at the official Investors and Exporters (I & E) Window at N394.00 per dollar.
The report by Cordros Group however indicated that naira weakened by 0.4 per cent to N477 per dollar at the parallel market. With these, the naira had so far this year depreciated by 7.5 per cent at the official I & E Window market and as high as a drop of 24.1 per cent at the parallel market.
Meanwhile, the naira maintained a balance in the forwards market. It strengthened in the one-month contract by 0.1 per cent to N397.81 per dollar and by 0.3 per cent to N434.22 per dollar for the one-year contract. However, the naira depreciated by 0.1 per cent each to N404.99 per dollar for the three-month contract and N415.16 per dollar for the six-month contracts.
Analysts attributed the decline in forex reserves to outflows due to Central Bank of Nigeria (CBN)’s interventions across the various forex windows in the light of lower inflows into the reserves.
Cordros expected the naira to depreciate further closer to its fair value given expected pressure on the external reserves amid weak portfolio inflows.
“Our baseline expectation is that the CBN will depreciate the naira by 5.3 per cent to N400 per dollar in the interbank market and 5.1 per cent to N415 per dollar at the I & E Window,” Cordros stated.
Chief Executive Officer, Financial Derivatives Company (FDC), Bismarck Rewane, in a review at the weekend, said while currency pressures may reduce temporarily in first quarter 2021 due to World Bank’s loan disbursement and possible increase in Diaspora remittances, pressure is expected to resurface on increased capital outflows, heightened forex demand and dollar dearth.
