SAT, 09 JULY, 2022-theGBJournal| This week, Nigeria’s FX reserve recorded another accretion, growing by US$170.75 million w/w to US$39.34 billion (07 July 2022). Across the FX windows, the naira depreciated by 0.3% w/w to N426.13/USD at the I&E window and by 0.3% to NGN617.00/US$ in the parallel market.
At the I&E window, total turnover (as of 07 July) declined by 19.3% WTD to USD507.02 million, with trades consummated within the N410.00 – N450.58/USD band. In the Forwards market, the naira weakened across the 1-month (-0.7% to N427.55/USD), 3-month (-0.8% to N435.52/USD), 6-month (-1.2% to NGN449.17/USD), and 1-year (-1.1% to N472.14/USD) contracts.
Although the Central Bank of Nigeria (CBN) has enough liquidity to support the FX market over the short term, we highlight that foreign inflows are paramount for sustained FX liquidity over the medium term. Considering the tepid accretion to the reserves given the low crude oil production level and elevated PMS under-recovery costs, FPIs which have historically supported supply levels in the IEW will be needed to sustain FX liquidity levels in the medium to long term.
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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