SAT, 18 JUNE, 2022-theGBJournal| Nigeria’s FX reserves increased for the second consecutive week by USD118.47 million w/w to USD38.66 billion (16 June). Across the FX windows, the naira was flat at NGN421.33/USD at the I&E window (IEW) but depreciated by 0.3% to NGN608.00/USD at the parallel market.
At the I&E window, total turnover (as of 16 June) decreased by 27.0% WTD to USD376.04 million, with trades consummated within the N410.00 – N453.55/USD band. In the Forwards market, the rate increased at the 6-month (+0.3% to NGN436.80/USD) contract, but contracted at the 1-year (-0.1% to N460.50/USD) contract. The rate was flat at the 1-month (N419.57/USD) and 3-Month (N426.33/USD) contract.
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.
Twitter-@theGBJournal| Facebook-The Government and Business Journal|email: gbj@govbusinessjournal.ng|govandbusinessj@gmail.com
