SAT, 11 JUNE, 2022-theGBJournal| This week, Nigeria’s FX reserve recorded its first reserve accretion in five weeks as the reserves increased by USD56.35 million WTD to USD38.52 billion (9th June 2022).
Nonetheless, the Naira depreciated against the USD by 0.4% w/w to NGN421.25/USD at the I&E window but closed higher by 0.2% w/w to NGN606.00/USD in the parallel market.
At the I&E window, total turnover (as of 9th June 2022) declined by 81.7% WTD to USD244.96 million, with trades consummated within the NGN410.00 – NGN453.55/USD band. In the Forwards market, the rate was flat on the 1-month (NGN419.75/USD) contract but contracted on the 6-month (-0.1% to NGN438.27/USD) and 1-year (-0.1% to NGN460.15/USD) contracts. Meanwhile, the rate appreciated on the 3-month (+0.1% to NGN426.19/USD) contract.
Although the 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.
Cordros Research analysts 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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