SAT, 25 JUNE, 2022-theGBJournal| Nigeria’s FX reserves recorded another accretion this week, as it grew by USD220.04 million w/w to USD38.88 billion (23 June). Across the FX windows, the naira appreciated by 0.3% to NGN420.17/USD at the I&E window (IEW) but depreciated by 0.8% to NGN614.00/USD at the parallel market.
At the IEW, total turnover (as of 23 June) declined by 25.5% WTD to USD427.94 million, with trades consummated within the NGN410.00 – NGN453.55/USD band. In the Forwards market, the naira depreciated at the 1-month (-0.2% to NGN420.60/USD), 3-month (-0.3% to NGN427.50/USD), 6-months (-0.4% to NGN438.67/USD) and 1-year (-0.3% to NGN461.63/USD) contracts.
Although the CBN has enough liquidity to support the FX market over the short term, we highlight that foreign inflows are paramount for sustained FX liquidity over the medium term. Considering the tepid accretion to the reserves given the low crude oil production level 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. 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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