SAT APRIL 20 2024-theGBJournal| Nigeria’s FX reserves fell substantially this week, as gross reserves fell by US$502.99 million w/w to a seven-year low of US$32.11 billion (18 April).
Meanwhile, the naira paused its gaining streak as it fell by 2.4% to N1,169.99/USD at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
However, total turnover at the window surged by 110.5% WTD to US$1.25 billion (as of 18 April 2024), with trades consummated within the N981.04 – N1,227.00/US$1 band.
In the Forwards market, the naira rates recorded for the 1-month (+3.5% to N1,172.38/USD), 3-month (+3.1% to N1,211.71/US$) and 6-month (+2.5% to N1,272.39/USD) contracts increased, while the rate on the 1-year (-0.2% to N1,406.65/USD) contract decreased.
We point out the current pressure in the FX market resulting from FPIs exiting the domestic capital market primarily due to external shocks, such as the uncertainties surrounding the escalation of the war in the Middle East.
The prolonged conflict in the Middle East, as well as the US Fed keeping interest rates higher for longer, are major risks to the sustenance of FPI inflows into the country.
We think that the naira could be under pressure in the short term, given that these uncertainties remain as inflows from FPIs have been a major source of the improved liquidity seen in the near-recent past.
FX inflows from external trade remain constrained and may limit the Central Bank of Nigeria (CBN) from sufficiently intervening in the market.
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