SAT 26 MARCH, 2022-theGBJournal| Nigeria’s FX reserves declined for the third consecutive week as it closed lower by USD145.51 million w/w to USD39.52 billion (23rd March 2022).
Meanwhile, the naira was flat at NGN416.33/USD at the I&E window (IEW) but depreciated by 0.9% w/w to NGN588.00/USD at the parallel market.
At the IEW, total turnover (as of 24th March 2022) declined by 85.8% WTD to USD70.97 million, with trades consummated within the NGN419.98 – 453.25/USD band. In the Forwards market, the naira rate was flat at the 1-month (NGN418.19/USD), 3-month (NGN423.98/USD) and 6-month (NGN432.94/USD) contracts; however, the rate appreciated at the 1-year (+0.1% to NGN448.75/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 (USD1.20 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 quite 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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