SAT. 28 JANUARY, 2023-theGBJournal| Nigeria’s FX reserves declined by US$122.34 million w/w to US$37.07 billion (26 January 2023).
Meanwhile, the naira appreciated by 0.1% to N461.75/USD at the I&E window (IEW), with total turnover at the window (as of 26 January 2023) declining by 21.4% WTD to US$399.79 million, as trades were consummated within the NGN440.00 – NGN483.38/USD band.
In the Forwards market, the contract rate for the 1-month (N479.76/USD) was flat, however, there were depreciations recorded on the 3-month (-0.5% to N488.83/USD), 6-month (-1.2% to N506.47/USD), and 1-year (-0.2% to N532.70/USD) contracts.
We believe the FX liquidity issues will remain over the short-to-medium term as we do not see any positive signal that denotes an improvement in FX supply relative to the pre-pandemic levels.
Moreover, considering the tepid accretion to the reserves given low crude oil production 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.
Meanwhile,, the overnight (OVN) rate contracted by 50bps, w/w, to 11.0%, as inflows from FAAC allocation (c. N614.88 billion), FGN bond coupon payments (N167.51 billion) and OMO maturities (N40.00 billion) were sufficient to outweigh the late debit for CRR (N840.billion).
Accordingly, the average system liquidity closed higher at a net long position of N837.61 billion (vs. a net long position of NGN381.23 billion in the previous week).
We expect a tightening in the system liquidity next week, as the anticipated debits for the FGN bond, OMO & FX auctions will pressure system liquidity.
Hence, we envisage an expansion in the OVN rate from current levels.
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