Rising reserves boost CBN firepower to pursue forex reforms

…Crosses $30bn mark

The continued surge in the country’s external reserves occasioned by increase in output and oil prices is seen as a confidence boosting for the Central Bank of Nigeria (CBN) to pursue its foreign exchange policies.
In line with the analysts’ projections, the Nigeria’s external reserves on Thursday rose to a record high of $30.014 billion since October 19, 2016 when it fell to a low of $23.9 billion.
Analysts in the financial services sector had projected that external reserves would rise to $30 billion in March this year.
The rise in the foreign reserves has been attributed to oil prices increase and relative stability in the Niger Delta.
The nation’s reserves recorded its highest level in the last three years on May 2, 2013 rising to $48.9 billion when the price of crude oil (petroleum) was $103.03 per barrel.
The CBN has pumped in a total of $1.138 billion into the foreign exchange market within weeks of its new forex policy rule, a move geared towards ensuring stability of exchange rate.
Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) had at the last Monetary Policy Committee (MPC) meeting in January said rising oil prices have seen foreign exchange reserves inflows through the CBN rise by well over 82 percent helping push the external reserves to its current level.
Analysts said last night that the consistent rise in external reserves will help boost investor confidence in 2017.
Charles Robertson, global chief economist of Renaissance Capital said Nigeria is now getting more dollars in, on the current account, than it is spending on imports.
“We think the CBN is now comfortable enough to let these excess dollars into the market which is why the (parallel) exchange rate strengthened in recent weeks.  It should help restore a little investment, consumption and growth in 2017,” Robertson said in an emailed response to BusinessDay.
Ayodeji  Ebo, acting managing director, Afrinvest Securities Limited, told BusinesDay on phone that the accretion in the external reserves is a positive sign for Nigeria as it would boost investors’ confidence.
Ebo added that it would strengthen the ability of the Central Bank to defend the naira.
He looked at the factors that led to the increase in external reserves saying it is as a result of increase in crude oil production and prices which consequently led to increase in oil proceeds.
Taiwo Oyedele, PwC head of tax and regulatory services West Africa Tax Leader, had in an emailed response to BusinessDay said high foreign exchange reserve gives a positive signal about the financial strength of the economy and should help improve investor confidence.
However, he strongly believes that the real benefit will only be realised if it is complimented with other factors such as sound exchange rate management, better investment climate, ease of doing business, security of lives and property and overall economic wellbeing.

HOPE MOSES-ASHIKE