SAT 02 APRIL, 2022-theGBJournal| Nigeria’s FX reserve recorded its first accretion in four weeks as it increased by USD21.11 million w/w to USD39.55 billion (29th March 2022).
Meanwhile, the naira depreciated by 0.1% to NGN416.63/USD at the I&E window (IEW), but was flat at NGN588.00/USD at the parallel market.
At the IEW, total turnover (as of 31st March 2022) increased by 21.9% WTD to USD752.97 million, with trades consummated within the NGN410.00 – NGN453.25/USD band. In the Forwards market, the naira was flat at the 1-month (NGN418.13USD), 3-months (NGN424.08/USD) and 6-months (NGN433.42/USD) contracts, but appreciated at the 1year (+1.1% to NGN448.18/USD) contract.
In our opinion, the CBN has enough supply to support the FX market over the short term, given inflows from the recently issued Eurobond (USD1.2 billion) and the IMF’s SDR. However, foreign inflows are paramount for sustained FX liquidity over the medium term, in line with our expectation that accretion to the reserves will be weak given that crude oil production levels remain pretty low.
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 (1) further adjustments in the NGN/USD peg closer to its fair value and (2) flexibility in the exchange rate would be significant in attracting foreign inflows back to the market.
Twitter-@theGBJournal|Facebook-The Government and Business Journal|email: gbj@govbusinessjournal.ng|govandbusinessj@gmail.com
