Naira Trades at N416 as Parallel Market Rate Worsen
Nigerian naira trades strong against the United States dollar in the Investors and Exporters or official foreign exchange window where it traded at N416 at the just concluded week as external reserve stays below $40 billion marks.
However, the local currency was priced down at the parallel market after the Central Bank of Nigeria (CBN) announced a plan to halt FX sales to Banks in 2022.
Amidst the slowdown in dollar inflow into the Nigerian economy due to weak exports receipt, the external Reserves dip further in the week as the apex bank maintained a market intervention stance.
CBN’s injected $210 million into the market this week. Of the sum, $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.
MarketForces Africa reported that the global prices of oil remain steady and Nigeria’s oil production inched up near 1.4 million barrels per day, according to the Organisation of Petroleum Exporting Countries report for January.
Data from the global oil market shows that Bonny Light price – Nigeria’s crude variant – touched USD94.16 per barrel in the just concluded week amidst tight market supply.
Data from the Central Bank of Nigeria (CBN) shows that the external reserves printed at $39.871 billion on Friday, it had crossed the resistance levels after the Eurobond raise and IMF SDR supply last year.
Broadstreet analysts’ expectation over naira assets remains negative while MSCI Index recently said it would not implement changes on Nigeria Index due to observed pressure that emanated from CBN capital control measure.
In the week, the CBN maintained its interventions in the FX market. Specifically, the gross reserves declined by $108.32 million week on week to $39.87 billion. Read: Naira Skids at Official, Parallel Markets as Oil Receipts Underperform
The naira appreciated by 0.1% week on week to N416.00 at the Investors and Exporters window but depreciated by 0.9% this week to N576.00/$ at the parallel market, according to a macroeconomic note from Cordros Capital.
At the IEW, the volume of dollars transacted declined by 18.3% from the beginning of the week date to $484.55 million, according to analysts note supported by data from the FMDQ Exchange. Transactions were consummated within the N404.00 – 474.59 band by market participants, according to Cordros Capital analysts’ notes.
In the Forwards market, the naira rate closed flat at the 1-month (N418.6/$) and 6-month (N434.01/$) and 1-year (N448.61/$) contracts but appreciated at the 3-month (+0.1% to N424.26/$) contract.
Analysts at Cordros Capital maintain a view that the apex bank has enough supply to support the FX market over the short term, given inflows from the recently issued Eurobond and the IMF’s SDR.
However, analysts stated that foreign inflows are paramount for sustained FX liquidity over the medium term, in line with our expectation that accretion to the reserves will be weak given that crude oil production levels remain quite low.
Thus, FPIs which have historically supported supply levels in the Investors and Exporters FX window (53.8% of FX inflows to the IEW in 2019) will be needed to sustain FX liquidity levels, according to analysts note.
In sum, Cordros Capital thinks further adjustments in the exchange rate peg closer to its fair value and flexibility in the exchange rate would be significant in attracting foreign inflows back to the market.
