H1'22: FOREX TRANSACTIONS IN I & E INCREASE BY 95% TO $20.2 BILLION.

· External reserves have decreased by 3.3 percent to N39.15 billion.

· Naira falls by 2.8 percent

The volume of dollars transacted (turnover) in the official Investors and Exporters (I&E) window, increased by 95% year on year (YoY) to $20.23 billion in the first half of the year (H1'22) from $10.34 billion in the same period last year.

However, according to a Vanguard study of transactions in the window provided by FMDQ, quarterly from 30% to $8.33 billion in the second quarter of 2022 (Q2'22) from $11.9 billion in the first quarter of 2022 (Q1'22).

In January, turnover was $3.22 billion, but it decreased 33.8 percent to $2.13 billion in February.

It increased by 207% in March to $6.55 billion, only to plummet by 59% in April to $2.63 billion. This trend continued in May, with turnover falling by 4.9% to $2.5 billion. In June, turnover increased by 28% to $3.2 billion, reversing the trend.

EXTERNAL RESERVES ARE DECREASING.

Reflecting the impact of declining dollar profits owing to increased fuel subsidy costs. This is apparent in the 36% drop in oil income in February, which the Central Bank of Nigeria, CBN, ascribed to Premium Motor Spirit value deficit recovery (petrol).

According to the Central Bank of Nigeria's monthly economic report, the country earned nothing in gas exports in January and February.

However, the nation's foreign reserves increased modestly by 1.7%, from $38.484 billion at the end of May to $39.155 billion at the end of June.

NAIRA FALLS IN VALUE.

The naira fell in both the I&E window and the parallel market in H1'22, reflecting the nation's declining foreign reserves.

The naira depreciated by 2.8% in the I&E window, to N425.05 per dollar at the end of H1'22 from N413.38 per dollar at the end of December 2021.

In the parallel market, the local currency depreciated by 6.0 percent, to N615 per dollar at the end of H1'22 from N580 per dollar at the end of December 2021.

Meanwhile, economists are concerned that the naira's downward trend would continue in H2'22 due to declining dollar inflows despite high demand pressure.

The importance of this approach is shown in the situation, which posted three consecutive quarters of surpluses in the second, third, and fourth quarters of 2021, following a period of deficits of more than 10 quarters.

“While Emerging Markets and Developing Economies, Nigeria faces a less severe risk due to the comparatively Foreign Portfolio Investments, FPIs, compared to pre-pandemic levels.” Nonetheless, an increase in the Monetary Policy Rate, or MPR, will reduce the yield gap and guarantee that Nigeria is competitive in destination for offshore capital.

POSITION OF EXPERTS

Analysts at FSDH Merchant Bank predicted that the I&E rate will reach N430 per dollar by the end of 2022.

“While the year-to-date performance of Nigeria's exchange rate on the I&E window continues on the gaining side, the recent performance signals growing pressure on the currency,” according to the company's macro assessment and prognosis for Nigeria, April 2022.

“At the end of Q1'22, the naira exchange rate increased by 4.3% to N416.25/$, up from N435/$ at the end of Q4'21.” However, due to a lack of Forex supplies, the currency fell to N419.5/$ on April 21, 2022.