SAT. 21 JANUARY, 2023-theGBJournal| This week, Nigeria’s FX reserve recorded another accretion, rising by US$2.61 million w/w to US$37.21 billion (18 January 2023).
In the same vein, the naira appreciated by 0.1% to N461.50/USD at the I&E window (IEW), with total turnover at the window (as of 19 January) increasing by 10.6% WTD to US$527.52 million, as trades were consummated within the N440.00 – N478.80/USD band.
Inflows into the Investors & Exporters Window (IEW) increased by 87.7% m/m to US$1.85 billion in December (November: US$984.50 billion) – the highest level in 12 months.
Parsing through the breakdown provided, we highlight that the significant increase was primarily driven by the local sources (+110.3% m/m to USD1.74 billion) just as foreign investors (-30.6% m/m to USD109.80 million) remained on the sidelines.
Notably, inflows from exporters (+88.0% y/y to USD819.10 million) rose to their highest level in six months, likely reflecting the continued impact of CBN’s rebate scheme to attract non-oil exports.
Notwithstanding, we note that the average monthly inflows to the IEW in 2022FY (USD1.24 billion) was 2.0% and 57.4% lower than 2021FY and pre-pandemic level (2019FY), respectively.
The preceding reflects that FX illiquidity remains intact two years after the COVID-19 pandemic distorted the supposedly smooth functioning of the economy.
In the Forwards market, there were depreciations recorded across the 1-month (-0.6% to N479.62/USD), 3-months (-0.9% to N486.55/USD), and 1-year (-1.4% to N531.47/USD) contracts. Meanwhile, the rate appreciated at the 6-month (+1.9% to N500.42/USD) contract.
In line with our expectations, the overnight (OVN) rate inched higher by 150bps to close this week at 11.5%, as the inflows from FGN bond coupon payments (N65.36 billion) were not enough to saturate the financial system.
As a result, the average system liquidity closed lower at a net long position of N381.23 billion (vs a net long position of NGN430.30 billion in the prior week).
Next week, we expect the OVN rate to trend downward following inflows into the system from FGN bond coupon payments (N167.51 billion) and OMO maturities (N40.00 billion).
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