• Wednesday, April 24, 2024
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External reserves grow by 2.83% on foreign capital inflows, remittances

Nigeria’s opaque external reserves drains confidence in FX reform

Nigeria’s external reserves have recorded 2.83 percent year-to-date accretion following inflows from foreign capital and remittances.

Data from the Central Bank of Nigeria (CBN) revealed that foreign currency reserves increased to $34.11 billion as of March 7, 2024 from $33.17 billion at the beginning of the year.

External reserves refer to the foreign currency and other assets held by a country’s Central Bank. These reserves are typically composed of foreign currencies, gold, and other international assets.

Increasing reserves can signal stability in the economy, as it suggests that the country has enough foreign currency to meet its international obligations and manage any potential economic shocks.

Rising reserves can support the value of the domestic currency, as the Central Bank can intervene in currency markets to prevent excessive fluctuations.

On Wednesday, the Central Bank of Nigeria (CBN) announced a remarkable upswing in Diaspora remittances, soaring by 433 percent to reach $1.3 billion in February, compared to $300 million in January.

“We saw a 1.0 percent week-on-week (w/w) accretion in the foreign reserves to $34.02bn as of March 6th, 2024, owing to foreign capital inflow (evident in the year-to-date (YTD) foreign net inflows of $822.6m through the NAFEM window) following CBN’s drive to attract FX, analysts at Afrinvest Securities Limited, said.

Naira on Friday depreciated by 1.55 percent as the dollar was quoted at N1,627.40, weaker than N1,602.17 quoted on Thursday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data released by the FMDQ Securities Exchange.

Intraday high also weakened to N1,640 per dollar on Friday compared to N1,635 on Thursday. However, the intraday low appreciated to N1,413/$1 on Friday, stronger than N1,470/$ on Thursday.

Dollar supply by willing sellers and willing buyers increased by 63.48 percent to $269.35 million on Friday from $164.76 million recorded on Thursday.

At the parallel market, also known as the black market, naira steadied at N1,620 per dollar.

Olayemi Cardoso, governor of the CBN, said after the Monetary Policy Committee (MPC) meeting on February 27, 2024 that Nigeria’s external reserves have risen to $34 billion as against $33 billion at the beginning of the year.

On February 5, 2024, the CBN said it has reduced the $7 billion FX backlog it inherited to $2.2 billion and vowed it was working to clear the outstanding balance.

On a weekly basis, a report by Afrinvest noted that across the FX market this week, the Naira remained stable and traded within a similar band as the previous week. It said at the NAFEM Window, activity level improved 41.4 percent ($473.1m) to $421.6 million and the price currency (naira) fell 4.9 percent w/w against the base currency (dollar) to N1,627.40/$1.00. Similarly, the price currency (naira) dipped 5.3 percent w/w against the base currency (dollar) to N1,600.00/$1.00 at the parallel market.

“We note that the spread between the NAFEM and parallel rates sustained its streak for the second week though the weekly average declined 98.8 percent to N27.40.

“In the week ahead, the Naira is likely to trade within a similar band across FX segments, supported by intensified regulatory spotlight, the analysts, said.

During a press briefing in Abuja, Hakama Sidi Ali, acting director of corporate communications at CBN, emphasized the significant surge in overseas remittances, surpassing fourfold the figures from the previous month.

She highlighted that foreign investors exhibited keen interest in Nigerian assets, with investments exceeding $1 billion in February alone. Moreover, total portfolio flows for 2024 have reached $2.3 billion, indicating a promising trajectory compared to the $3.9 billion recorded for the entirety of the previous year.

Furthermore, Ali indicated that the momentum of higher foreign exchange inflows persisted into March 2024, attributed to heightened investor appetite for short-term sovereign debt following adjustments to benchmark interest rates.

Notably, government securities issuances witnessed substantial oversubscription, with foreign investors dominating bids, accounting for over 75 percent of the total bids received during auctions conducted on March 1 and 6, 2024.