SAT 05 MARCH, 2022-theGBJournal- Nigeria’s FX reserves recorded its second consecutive week of accretion as it closed higher by USD25.56 million w/w to USD39.87 billion (2nd March 2022).
Meanwhile, the naira depreciated by 0.2% and 0.5% w/w to NGN416.67/USD and NGN577.00/USD at the I&E window (IEW) and the parallel market, respectively. At the IEW, total turnover (as of 3rd March 2022) declined by 24.9% WTD to USD433.45 million, with trades consummated within the NGN408.00 – 453.15/USD band.
In the Forwards market, the naira appreciated at the 1-month (+0.1% to NGN418.80/USD), 3-months (+0.2% to NGN424.34/USD), 6-months (+0.4% to NGN433.42/USD) and 1-year (+1.3% to NGN449.67/USD) contracts.
In our opinion, the CBN has enough supply to support the FX market over the short term, given inflows from the recently issued Eurobond 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 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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