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FX worries persist as external reserves rise to $41b

FOREIGN exchange (FX) rate pressures persist this week as inflows from Eurobonds, special drawing rights pushed the Nigerian gross external reserves to about $41 billion, according to data from the Central Bank (CBN).

Naira exchange rate stays unimpressive for the productive segment even with the sizeable dollar inflows in addition to receipts from oil exports. Demand for the United States dollar remains strong than associated inflow as data from the Nigerian Stock market indicates that foreign portfolios investors again moved aside, though getting foreign currency out remains under the CBN tight control.

Federal Government revenue is however expected to be boosted with a combination an increased production volume and rising global prices. Nigeria has been unable to meet the Organisation of the Petroleum Exporting Countries and allies quota due to technical issues.

Also, Shell had declared force majeure on Forcados, causing fiscal slippage reported by the Budget office in the first half of 2021, raising deficit risks. MarketForces Africa check sees that naira traded largely weak at more than N415 to a dollar at the Central bank of Nigeria’s designed investors and exporter’s foreign exchange window.

With steep consumers’ prices across markets, the inflation rate continues to drop while Nigerians can barely afford basic needs as the value of the local currency tumbles. Nigeria’s unemployment rate has remained high in addition to a steep headline inflation rate at 16.63% in September and weak naira.

A $4 billion Eurobond raise and about $3.5 billion special drawing rights lifeline from the International Monetary Fund have pushed the Nigerian gross external reserves to about $40 billion.

At the weekend, Nigeria’s gross external reserves printed at N40.957 billion following an additional inflow from N36.672 billion as of 30 September 2021.

After the foreign currency borrowing from the international debt capital market last month, and an undisclosed sum for SDR which analysts estimated to be around $3.5 billion based on Nigeria contribution to IMF, external reserves has maintained an uptrend.

The accretion into the reserves was sustained with support from increased oil prices in the global market. Also, the CBN lowered participation in the National Autonomous Foreign Exchange Fixing market which has resulted in a runoff on Naira in the Investors and Exporters window.

Data obtained from the FMDQ Exchange platform shows that the local currency stabilised against the greenback as the pair closed flat at N415.07 at the Investors and Exporters FX window as an additional $1.34 billion, within one week, increased the external reserves balance to $40.96 billion as at Friday, October 22, 2021.

But the local currency depreciated by 0.35% at the parallel market to close at N570 to a dollar. Meanwhile, the exchange rate remained flat at N380.69 at the Interbank Foreign Exchange market amid weekly injections of $210 million by CBN into the forex market.

From the dollar injected into the FX market, a total sum of $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.

Elsewhere, the Naira/$ exchange rate fell for most of the foreign exchange forward contracts: 1 month, 2 months, 3 months, 6 months and 12 months contracts fell by 0.04%, 0.19%, 0.27%, 0.38% and 0.96% to close at N415.91, N418.36, N421.10, N429.82 and N446.28 respectively, according to Cowry Asset note. 

However, the spot rate was flat at N380.69 to a dollar. 

In the new week, analysts said they expect Naira to stabilise against the dollar amid rising crude oil prices and external reserves even as CBN continues its foreign exchange demand management policy amid scarce supply.

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Naija Times