Nigeria’s foreign exchange reserves have fallen to the lowest in nearly two months, data from the Central Bank of Nigeria (CBN) shows.
The FX reserves, which gives the CBN the firepower to defend the naira, declined to $33.36 billion as of April 5 after hitting a peak at $34.45 billion in March.
Meanwhile, the naira has appreciated against the dollar in recent weeks, buoyed by the central bank’s measures including the clearing of FX backlog and interest rate hikes. The Monetary Policy Committee has raised the benchmark interest rate by a total of 600 basis points this year to 24.75 percent.
After trading on Monday, the naira closed at N1,230.61 per dollar as against 1,251.05/$ on Friday at the Nigerian Autonomous Foreign Exchange Market, according to the data from the FMDQ Securities Exchange.
Economic analysts have attributed the depletion of the external reserves to CBN’s intervention in the FX market.
“The CBN has been intervening in the market; so that is one likely cause of the depletion of foreign reserves. There are direct sales to the BDCs, and they also have their framework for making funds available to the official window. Some of the FX supply in the market also comes from the CBN,” said Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise.
“That is why we are seeing the depletion in reserves. However, I believe we are getting results for it. There’s an improvement in FX rates. So, aside from this liquidity squeeze, their intervention is helping the naira,” he added.
In a letter dated April 8 2024 and addressed to the president of the Association of Bureau De Change Operators of Nigeria, the CBN announced the sale of $10,000 to the BDC operators at an exchange rate of N1,101 per dollar.
This measure was in a bid to meet retail market demand for eligible invisible transactions, the letter said.
“The decline in FX reserves can be attributed to the recently verified backlogs that were cleared by the CBN, as well as other efforts to bring the naira to a more appreciable rate. The increase in FX reserves in March was due to improved foreign inflows,” Lamidi Olayinka, founder of FinCorrect Financial services, said.
an economic analyst, said.
He said the increase in the monetary policy rate will send a signal to investors, thereby attracting more FX supply.
Akin Ogunsola, senior partner at Karma Professional Services, said that despite the recent decline, expected foreign direct investments would boost FX reserves.
“In February, Nigeria got some foreign direct investments into the country,” he said, citing the president’s visits to India, and Qatar. “Shortly after that, the CBN paid the verifiable outstanding FX backlog. Then, they sold FX supply to the BDCs, all from the reserves.”
“The CBN has also said about $1.5 billion will be injected into the country very soon as part of the FDIs. Since the naira has been gaining for the past few months, it has encouraged some investors to come in,” he added.
