Naira Recovers After Devaluation at Investors/Exporters FX Window
The Nigerian local currency, naira, traded stronger against the United States dollar at the investors and exporters foreign exchange market during the first week in 2022. Also, Nigeria’s local currency appreciated against the greenback in the forward market.
This week, naira gained 4.6% after opening the year at a devaluated rate of N435 to a dollar. FMDQ Exchange data shows that the exchange rate at the investors ended the week at N416 per dollar at the investors’ window.
CBN had allowed the naira exchange rate to slide to N435 amidst a dollar shortage in the currencies market at the end of 2021 – though external reserves remain healthy.
Based on data from the Central Bank, Nigeria’s FX reserve sustained its descent, as it declined by US$1.78 million this week to US$40.52 billion. On the other side of the currencies market ignored by the apex bank for lack of structure, the naira depreciated by 0.9% this week to N570.00.
Cordros Capital note also shows that in the forwards market contracts, the naira rate appreciated at the 0.5% on 1-month to N416.78, 0.9% on 3-month to N422.70, 1.2% on 6-month to N432.40 and 1.3% on a 1-year contract to N442.85.
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, analysts at Cordros Capital said in the note.
However, analysts stated that foreign inflows are paramount for sustained FX liquidity over the medium term, in line with the expectation that accretion to the reserves will be weak given that crude oil production levels remain quite low.
FPIs which have historically supported supply levels in the investors and exporters FX window will be needed to sustain FX liquidity levels, analysts maintained.
Citing foreign exchange market data, analysts hinted that foreign portfolio investments accounted for 53.8% of foreign currencies inflows to the Investors and Exporters window in 2019.
Cordros Capital analysts think further adjustments in the FX rate peg closer to its fair value and flexibility in the exchange rate would be significant in attracting foreign inflows back to the market. #Naira Recovers After Devaluation at Investors/Exporters FX Window
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