BusinessDay

External reserves loses 2% value year to date

Nigeria’s external reserves have lost over two percent of its value since the start of the year, according to a new report by FSDH Research, an arm of FSDH Holding Company Limited, a non-operating holding company focused on the provision of progressive financial services in Nigeria.

Africa’s largest economy’s foreign exchange reserves, which opened the year 2022 at $40.5 billion, have declined to $39.52 billion as of March 25, 2022, data from the Central Bank of Nigeria (CBN) show.

Since the approval of the $3.35 billion Special Drawing Rights (SDRs) by the IMF in August 2021 and the issuance of Eurobond in September, external reserves have trended downwards, the report stated.

Lower oil production below the budgeted benchmark despite high crude oil price led to limited foreign currency inflows needed to boost the reserves.

In addition, rising import bills continued to exert pressure on external reserves and this is expected to continue into the year.

However, the report noted that while Nigeria continues to struggle with diversifying and improving foreign exchange inflows, the exchange rate in the Investors’ and Exporters’ (I&E) Window has remained stable so far in 2022.

The Naira exchange rate on the first trading day in 2022 stood at N422/US$ on the I&E Window. It appreciated to N416.50/$ as at 15th March 2022.

The parallel market, on the other hand, experienced pressure. The gap/premium between the two markets increased to N156.6/$ in the first quarter (Q) of 2022 from N73.64/$ in Q1 of 2021.

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The Parallel market rate as at March 15, 2022 stood at N578/$, increasing from N565/$ at the beginning of the year.

Last week, Godwin Emefiele, governor of the CBN said Naira has remained largely stable at the Investors and Exporters window, following the demand management policy of the Central Bank.

On July 29, 2021, the CBN announced the immediate discontinuance of foreign currencies sales to Bureaux de Change (BDC) operators in Nigeria. In addition, the CBN also suspended the applications for and issuance of new licenses for BDC operations in the country.

At the money market yesterday, the treasury bills market had a calm session on Monday, despite the liquidity from Federation Account Allocation Committee (FAAC) disbursement and coupon payment. Pockets of demand were however seen for short dated papers, most notably the special bill papers, as players trade cautiously ahead of this week’s Primary Market Auction (PMA), according to a note from Parthian Partners, Africa’s premier inter-dealer broker.

“We expect similar sentiment in today’s session, as participants remain on the sidelines,” analysts at Parthian Partners said.

The bond market was bearish in yesterday’s market, amid minimal demand. Slightly improved offers were shown across board, as buyers sought better yields in the market.

Only a handful of trades were executed, with the on-the-run bonds being the most active, as well as the 2028 papers. Yields closed approximately flat on the day. The analysts expect sentiment to remain weak in the bond market in the interim.