Nigeria’s external reserve gains $1.6bn in one month

Nigeria’s external reserve has in the last one month grown by 4.58 percent to $36.50 billion as at January 21, 2021, compared to $34.90 billion on December 22, 2020.

The growth in the foreign exchange reserves is attributed to the rising oil price. The price of Brent crude has increased to $55.66 per barrel as of Monday, January 25, 2021.

The development gives the Central Bank of Nigeria (CBN) more firepower to defend the naira. The local currency on Monday steadied at N477 and 475 per dollar at the black market and Bureaux De Change (BDC) segment, respectively.

At the Investors and Exporters (I&E) forex window, Naira depreciated marginally by 0.08 percent as the dollar was quoted at N394.50 on Monday as against the last close of at N394.17 on Friday. Analysts at FSDH research noted that most participants maintained bids between N390.00 and N395.00 per dollar.

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The CBN has barred exporters with unrepatriated export proceeds from accessing all banking services by 31st January 2021. Consequently, the affected exporters are expected to comply with this directive before the specified date.

Daily foreign exchange turnover declined by 10.15 percent to $39.99 million on Monday from $44.51 million recorded on Friday at the I&E window, data from the FMDQ indicated.

“We do not expect any significant FX adjustment to be announced on Tuesday. With oil prices up YTD on Saudi production cuts, fuel subsidies removed, and electricity tariffs due to rise at end-January, the authorities will likely continue to prioritise reforms other than FX adjustment,” said, Razia Khan, head of Research, Africa and the Middle East, Standard Chartered Bank.
The Monetary Policy Committee (MPC) commenced its first meeting of the year on Monday and would announce a decision on the benchmark interest rate on Tuesday with analysts in the financial sector expecting no change.

“We expect the Central Bank of Nigeria’s (CBN’s) Monetary Policy Committee (MPC) to keep monetary policy unchanged at its meeting on Tuesday,” Khan said.

After significant policy easing in September 2020, when the monetary policy rate (MPR) was cut 100bps to 11.5% and the corridor was adjusted to +100/-700bps around the MPR (+200bps/-500bps prior), inflation has continued to accelerate, driven by food prices. Rates were unchanged in November. In December, food price inflation soared to 19.6% y/y.

Persistent pressure on the parallel-market FX rate, the failure of official intervention to close the gap between official FX rates and the parallel market, insecurity and adverse supply conditions, even as Nigeria has taken steps to raise domestic production, have contributed to higher inflation. The CBN hopes that recent re-opening of land borders and the release of 300,000 metric tonnes of imported maize planned for February will help prices to correct lower. It may prefer to hold off on any monetary policy adjustments.