SAT, 21 MAY, 2022-theGBJournal | Nigeria’s FX reserve sustained its descent for the third consecutive week, as it fell to its lowest level since 8 October 2021. Specifically, the reserves declined by USD175.17 million w/w to USD38.84 billion (18 May 2022).
Across the FX windows, the naira was flat at NGN419.03/USD at the I&E window (IEW) but depreciated by 1.2% to NGN606.00/USD at the parallel market.
At the I&E window, total turnover (as of 19 May 2022) decreased by 39.1% WTD to USD453.49 million, with trades consummated within the NGN410.00 – NGN453.35/USD band. In the Forwards market, the rate weakened at the 1-month (-0.1% to NGN418.63/USD), 3-months (-0.2% to NGN424.79/USD), and 1-year (-1.1% to NGN456.94/USD) contracts but was flat at the 6-Month (NGN434.54/USD) contact.
Given inflows from the recently issued Eurobond and the IMF’s SDR, we think the CBN has enough supply to support the FX market over the short term. Nevertheless, we note that foreign inflows are paramount for sustained FX liquidity over the medium term, in line with our expectation that accretion to the reserves will be tepid given that crude oil production levels remain pretty low.
Thus, FPIs which have historically supported supply levels in the IEW will be needed to sustain FX liquidity levels. Therefore, in our opinion, we think further adjustments in the NGN/USD peg closer to its fair value and flexibility in the exchange rate would be needed to significantly attract foreign inflows back to the market.
Twitter-@theGBJournal|Facebook-The Government and Business Journal|email: gbj@govbusinessjournal.ng|govandbusinessj@gmail.com
