SAT, 04 JUNE, 2022-theGBJournal| Nigeria’s FX reserve sustained its descent for the fifth consecutive week, decreasing to its lowest level since 8th October 2021. Precisely, the reserves declined by USD58.90 million w/w to USD38.48 billion (31st May 2022). Across the FX windows, the naira fell by 0.1% to NGN419.75/USD at the I&E window (IEW) but appreciated by 0.7% to NGN606.00/USD at the parallel market.
At the I&E window, total turnover (as of 2nd June 2022) increased by 115.3% WTD to USD1.15 billion, with trades consummated within the NGN410.00 – NGN453.55/USD band.
In the Forwards market, the rate was flat on the 1-month (NGN419.70/USD) and 3-month (NGN426.63/USD) contracts but contracted on the 6-month (-0.1% to NGN438.05/USD) and 1-year (-0.2% to NGN459.74/USD) contracts.
We believe the CBN has enough liquidity to support the FX market over the short term, given inflows from the recently issued Eurobond and the IMF’s SDR. However, we highlight 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.
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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