External reserves decline to 3-month low

Nigeria’s external reserves have declined to $40.31 billion as of January 21, 2022, the lowest since October 29, 2021, when it stood at $41.82 billion, representing a 3.61 percent decline.

This, according to analysts at Coronation Research, was due to continued interventions by the Central Bank of Nigeria (CBN) in the Foreign Exchange (FX) markets.

“Our view remains that the CBN’s position is strong as the level of FX reserves remains high in the long-term context. Hence, it seems possible that stability will be maintained in the Investors and Exporters (I&E) window and Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rates in the near term,” the analysts at Coronation said.

Last week at the interbank foreign exchange market, the naira/dollar exchange rate closed flat at N430.00/dollar amid CBN’s weekly injections of $210 million, said Cowry Asset analysts.

A breakdown of the FX intervention showed that $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 invisible.

Godwin Emefiele, governor of the CBN, said in November 2021 that based on in-house analysis and simulations, external reserves could surpass $42 billion by mid-2022 from the $41.5 billion in 2021q3, based on the dynamics of oil price and FX demand for imports.

Generally, external reserves are expected to be at relatively comfortable levels with the expectation of a sustained trend of current crude oil price, the impact of Eurobond issuance, and stable exchange rate condition.

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The price of Brent Crude (ICE) has increased to $87.15 per barrel as of 12-noon Nigerian time on Tuesday. Looking at the naira/dollar position this week, analysts at Cowry Assets said, “We expect the naira to further appreciate against the dollar amid rising crude oil prices at the international market. However, the drop in output may affect the exchange rate in the near to medium term.

In its monthly economic report for October 2021, the CBN noted that Apex bank has continued to deploy its foreign exchange management instruments to ensure liquidity and stabilise the foreign exchange market.

Consequently, total foreign exchange sales to authorised dealers by the banking sector regulator was $1.51 billion in October 2021, representing a decrease of 7.9 percent below $1.64 billion in September 2021.

Disaggregation shows that foreign exchange sales at the Small and Medium Enterprises and Investors and Exporters (I&E) windows rose by 3.7 percent and 80.4 percent to $0.12 billion and $0.55 billion, respectively.

However, foreign exchange sales at the interbank, secondary market intervention sales and swap contracts fell by 27.7 percent, 24.6 percent, and 74.3 percent, to $0.20 billion, $0.60 billion, and $0.04 billion, respectively, in October 2021, compared with the levels in September 2021.

Bode Agusto, CEO, Agusto & Co, Lagos-based research, credit ratings, credit risk management firm, said dual exchange rates will continue in 2022.

The CBN, he said would use improved oil and gas export revenues and maybe some of the external reserves to shore up the NAFEX rate which he estimates will close the year at about N430/$1.

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