SAT, MAY 20 2023-theGBJournal | This week, Nigeria’s FX reserve advanced slightly by US$8.22 million w/w to close at USD35.20 billion (17 May).
FX liquidity issues has remained over the short-to-medium term as there are no positive signals which point towards 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 who have historically supported supply levels in the IEW will be needed to sustain FX liquidity levels in the medium to long-term.
Meanwhile, the naira depreciated by 0.1% to N463.00/USD at the I&E window (IEW), with total turnover at the window (as of 17 May 2023) decreasing by 21.1% WTD to US$554.11 million, as trades were consummated within the N460.00 – N481.58/US$ band.
In the Forwards market, the naira rates recorded for the 1-month (-0.7% to N477.70/US$) contract declined but increased for the 3-month (+0.1% to N517.99/US$) and 1-year (+4.0% to N574.74/US$) contracts. Meanwhile, the rate was flat at the 6-month (N557.61/USD) contract.
Meanwhile, the overnight (OVN) rate increased by 300bps w/w to 15.6%, as funding for the May FGN bond auction (N368.15 billion) pressured the system and outweighed the inflow from OMO maturities (N10.00 billion).
As a result, the average system liquidity settled lower at a net short position of N29.89 billion (vs a net long position of N660.01 billion in the previous week).
Next week, we expect the system to be awash with liquidity, following expected inflows from FAAC allocation (N407.13 billion) and FGN bond coupon payments (N17.87 billion). Thus, the OVN rate is likely to temper from current levels next week.
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