Nigeria’s Foreign Exchange Reserves Decline as Naira Faces Downward Pressure

The foreign exchange landscape in Nigeria witnessed a continued downward trajectory as the country’s gross reserves experienced a week-on-week decline of USD98.78 million, closing at USD33.20 billion as of November 23. Simultaneously, the national currency, the naira, depreciated by 0.4% against the US dollar, reaching NGN794.89/USD at the Nigerian Autonomous Foreign Exchange Market (NAFEM).

Market data for November 23, 2023, indicated a 27.4% week-to-date decrease in total turnover at NAFEM, amounting to USD610.99 million. Trades during this period were executed within the NGN600.00 – NGN1136.00/USD band, highlighting a cautious approach among market participants.

In the Forwards market, the naira recorded depreciation across various contracts. Notably, the 1-month contract experienced a 5.1% decline to NGN911.07/USD, the 3-month contract depreciated by 5.5% to NGN941.38/USD, the 6-month contract saw a 6.9% decrease to NGN984.57/USD, and the 1-year contract exhibited a 5.0% decline to NGN1,028.36/USD.

Forecasts for the near future indicate that FX liquidity conditions are likely to remain tight, contingent on the receipt of anticipated FX inflows. Consequently, pressure on the local currency is expected to persist. Foreign investors are closely monitoring developments in the FX space, with key points of interest including expected FX inflows as guided by authorities, recent actions by the Central Bank of Nigeria (CBN) in clearing its FX backlogs, and the discernible direction of short-term interest rates.

As Nigeria navigates its foreign exchange challenges, market participants are poised to react to evolving conditions, emphasizing the importance of a strategic and informed approach in the current economic landscape.

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