SAT, 07 MAY, 2022-theGBJournal | This week, Nigeria’s FX reserves decreased by USD152.55 million w/w to USD39.43 billion (04 May 2022).
However, the naira appreciated by 0.5% to NGN417.00/USD at the I&E window (IEW) and by 0.2% to NGN589.00/USD at the parallel market.
At the IEW, total turnover (as of 05 May 2022) decreased by 57.1% WTD to USD379.18 million, with trades consummated within the NGN410.00 – NGN453.15/USD band.
In the Forwards market, the naira was flat at the 1-month (NGN418.43/USD) contract, but depreciated at the 3-months (-0.1% to NGN424.11/USD), 6-months (-0.1% to NGN432.79/USD) and 1-year (-0.2% to NGN449.55USD) contracts.
In our outlook, 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 (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.
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