SAT, 14 MAY, 2022-theGBJournal | Nigeria’s FX reserves dipped by $234.81 million w/w to USD39.07 billion (11 May 2022).
Across the FX windows, the naira depreciated by 0.5% and 1.7% to NGN419.00/USD and NGN599.00/USD, at the I&E window and parallel market, respectively. At the IEW, total turnover (as of 12 May 2022) increased by 60.2% WTD to USD575.81 million, with trades consummated within the NGN410.84 – NGN453.25/USD band.
In the Forwards market, the naira was flat at the 1-month (NGN418.27/USD) and 3-months (NGN424.04/USD) contracts, but depreciated at the 6-months (-0.4% to NGN434.65/USD) and 1-year (-0.6% to NGN452.03USD) contracts.
In our view, the CBN has enough supply to support the FX market over the short term, given inflows from the recently issued Eurobond and the IMF’s SDR. However, foreign inflows are paramount for sustained FX liquidity over the medium term, given our expectation that accretion to the reserves will be undermined by the nation’s low crude oil production levels.
Thus, FPIs which have historically supported supply levels in the IEW (53.8% of FX inflows to the IEW in 2019FY) will be needed to sustain FX liquidity levels. Hence, we think further adjustments in the NGN/USD peg closer to its fair value and flexibility in the exchange rate would be significant in attracting foreign inflows back to the market.
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