According to analysts at Cordros Capital, the loan is a favourable short-term fix in providing near-term FX supply to support the market and stabilise the local currency.
However, the analysts stated that the amount is not sufficient to significantly support the local currency, especially as the funds will come in tranches.
“Thus, if not adequately managed with other measures (such as higher interest rates and additional funding support from third parties or multilateral institutions), Forex pressures may likely build up again, leading to another round of local currency depreciation,” it stated.
Last week, Nigeria’s external reserves declined further as the gross reserves level dropped by $37.45 million week-on-week (w/w) to close at $33.83 billion on August 16.
Meanwhile, the naira closed flat at N740.67/dollar at the I&E window (IEW), with total turnover at the window (as of 17 August 2023) increasing by 17.6 per cent week-to-date (WTD) to $459.37 million, as trades were consummated within the N701.00 – N799.90/$ band.
According to Cordros Capital, naira recorded for the 1-month (+1.4 per cent to N783.46/USD), three-month (+1.3 per cent to N802.83/$), six-month (+0.8 per cent to N831.80/$), and one-year (+0.9 per cent to N890.12/$) contracts in the forwards market increased.
Meanwhile, at the FX spot and derivatives markets, a turnover of $620.1 million was recorded during the week-ended August 18, 2023, representing an increase of 58.76 per cent ($229.5 million) from $390.6 million posted on August 11, 2023.
According to FMDQ Securities Exchange, the increase in total turnover was driven by the 62.67 per cent ($238.57 million) increase in FX spot turnover, offsetting 91.16 per cent ($9.07 million) decrease in FX derivatives turnover.
The exchange noted that the w/w decrease in FX derivatives turnover was solely driven by the 91.16 per cent ($9.07 million) decrease in FX Forwards turnover, while there was a sustained lack of activity in both Exchange Traded FX Futures and Naira-Settled OTC FX Futures markets
Also, in the FX spot market, the total value of transactions for the week ended August 18, 2023, was $619.2 million, representing an increase of 62.67 per cent ($238.57 million) from the value of transactions executed in the week-ended August 11, 2023 ($380.65 million).
FMDQ said there were no trades executed in the Exchange-Traded Forex Futures and extant Naira-Settled OTC Forex Futures markets for the week-ended August 18, 2023.
It added that the average Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rate was $/₦772.14, compared to $/₦770.75 recorded in the week ended August 11, 2023, representing a depreciation of 0.18 per cent ($/₦1.39) in favour of the dollar.