Naira Gains as CBN Used $125 mln from External Reserves
The Nigerian local currency, naira, witnessed a moderate gain in the official foreign exchange window as Central Bank used up some $125 million this week from the external reserves.
Naira closed at N414.73 to a dollar at the Investors and Exporters foreign exchange window, gaining 0.29% % in the week on healthy dollar supply but weakened 0.01% in the parallel market to N565.55.
Following CBN efforts to support the naira at the official channels, total foreign currency reserves available to the country for external transactions dropped off, albeit mildly, amidst fresh pressure from the Covid-19 Omicron variant in the global oil market.
After shedding $124.86 million, external reserves now settle at $41.15 billion while the local currency depreciated 0.2% week on week to N565.00 to a dollar at the parallel market.
This week, the volume of dollars transacted at the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) market slowdown, data from the FMDQ Exchange platform shows.
Total turnover at Investors and Exporters FX window declined by 22.7% from the beginning of the week to $772.53 million, according to Cordros Capital analysts note with trades consummated within the N404.00 – 457.86 per dollar band.
Meanwhile, the exchange rate closed flat at N430.00 a dollar at the Interbank Foreign Exchange market amid its weekly injections of $210 million, according to Cowry Asset analysts’ note.
Of the sum injected into the market, $100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for Invisibles.
Naira for dollar exchange rate further rose for most of the foreign exchange forward contract. Hence, 1 month, 3 months, 6 months and 12 months contracts increased by 0.03%, 0.03%, 0.03% and 0.03% to close at N416.07, N421.33, N430.47 and N448.13 respectively.
However, a 2-month contract appreciated by 0.01% to close at N418.46. In the new week, analysts at Cowry Assets expect Naira to strengthen slightly against the dollar amid relatively high crude oil prices and external reserves.
The CBN has enough supply to support the FX market over the short term, given inflows from the recently issued Eurobond and the IMF’s SDR, according to Cordros Capital.
However, analysts maintain that foreign inflows are paramount for sustained FX liquidity over the medium term. In line with analysts’ expectations, it said accretion to the reserves will be weak given that crude oil production levels remain quite low.
According to the November edition of the OPEC Monthly Oil Market Report, Nigeria’s average crude oil production (excluding condensates) settled at 1.35 million barrels per day in October from 1.40 mbpd in September, 19.6% below the 1.68mbpd which is the latest agreement permits.
As a result, average crude oil production declined by 13.5% year on year in 10-month of 2021 to 1.39 mbpd compare to 1.61 mbpd in the comparable period in 2020, according to Cordros Capital analysts note.
The decline in production witnessed during the year was due to the impact of infrastructure decay and complexities of operating the oil wells, both of which led to terminal shut-ins in some of the country’s major production facilities – Qua Iboe, Forcados, and Escravos.
Based on the preceding, we expect average crude oil production (excluding condensates) to settle at 1.63 mbpd in 2021 from 1.78 mbpd in 2020.
“We do not expect a material change to the current development over the short term, given the nature of challenges which mostly involve a dearth of infrastructure investment”, analysts at Cordros Capital. #Naira Gains as CBN Used $125 mln from External Reserves
