FRI. 20 JANUARY, 2023-theGBJournal| Foreign investors remain on the sidelines given the lack of FX reforms, higher global interest rates and weak macroeconomic narrative. In addition, CBN’s FX supply to the different FX market segments remains significantly below prepandemic levels.
Meanwhile, the demand for the greenback remains high as market players continue to source for FX to fulfil and clear their outstanding obligations. Consequently, since the last Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) meeting, the local currency depreciated by 3.4% to N461.25/USD at the official market (IEW) as of 18 January 2023.
Inflows into the IEW increased by 87.7% m/m to USD1.85 billion in December (November: USD984.50 billion) – its highest level in 12 months.
Given the breakdown provided, we highlight that the significant increase was primarily driven by the local sources (+110.3% m/m to USD1.74 billion) amid foreign investors (-30.6% m/m to USD109.80 million) remaining on the sidelines.
Notwithstanding, we note that the average monthly inflows to the IEW in 2022FY (USD1.24 billion) was 2.0% and 57.4% lower than 2021FY and pre-pandemic level, respectively.
The preceding reflects that FX illiquidity remains intact, two years after the COVID-19 pandemic distorted the supposedly smooth functioning of the economy.
Elsewhere, the gross FX reserves remain relatively unchanged, settling at USD37.21 billion as of 17 January 2023 (vs 22 November 2022: USD37.19 billion), likely reflecting the impact of the CBN’s limited intervention at the different FX windows even as crude oil production increased slightly in line with the FGN’s recent efforts at curbing crude oil theft and vandalism.
However, given that the FX reserves remain within the CBN’s comfort level, we expect the MPC to highlight the need for the apex bank to maintain its periodic FX interventions and intensify its call to the fiscal authorities to amplify their efforts in ensuring higher crude oil production over the short-to-medium term.-With Cordros Research
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