Nigerian Foreign Exchange Reserves Down By $3bn In One Month

by Chukwu Obi

External reserves otherwise known as foreign exchange reserves fell by $3.07 billion as of March 4 signifying 9.04 per cent drop compared to a month earlier, data from the Central Bank of Nigeria showed yesterday.

The reserves dropped to $30.87 billion by March 4, from $33.94 billion in February 4, DailyTrust Newspaper reports.

The CBN has been battling to maintain strong reserves as well as support the ailing naira which has been facing shocks due to the fall in crude oil at the international commodity markets and concerns over general elections which rescheduled to hold this month.

The bank has used the reserves to support the naira which fall by about 25 per cent since November.

According to Tope Fasua, an economist and publisher said the reason why naira continues to fall despite the intervention by the CBN was due to belief by many that naira is yet to hit its limit.

“In a situation we found ourselves currently where there is scepticism about the economy, many people buy dollar to keep then to hold naira equivalent and this is one of the major things that mop up the dollar from the market,” he added.

“In the international finance, when a nation says it wants to depend on its currency, people will go against it. That is why there is serious speculative attack on naira in recent time.”he added.

Mr Charles Ejike, an Abuja-based financial analyst also said unless the elections are over the foreign reserve will continue to dip.

Ejike said beside the issue of crude oil fall, which happened to be a major blow to our foreign reserve, the elections are key factors that can determine the stability of your economy.

If you look at the equity market, money market and even other sectors that require Foreign Direct Investments things are not going well. So this year is going to be a top one and the recovery will be towards the end of it, Ejike added.

The year begins with gross reserves of $34.49billion as of January 4 but now within three months, the reserves dropped to $30.87bn as of March 4.

In recent times, CBN is taking various majors to curb the fall in naira and safeguard the reserves. The CBN suspended its forex auction windows – the retail Dutch Auction System (r DAS) and wholesale Dutch Auction System (w DAS) last week due to the drops in the reserves and oil price at the international markets, the action commended by the International Monetary Fund (IMF) in its Article IV report released last week.

Executive Board of the IMF which concluded the Article IV consultation with Nigeria on February 27, 2015, and relased the report on March 4 welcomed the recent unification of the foreign exchange rates, noting that greater exchange rate flexibility could help cushion external shocks. As the largest single supplier of foreign exchange, it will be important for the central bank to intermediate this supply in a transparent, efficient, and fair manner.

Directors noted that financial soundness indicators remain above prudential norms, but the concentration of credit risks and foreign currency exposures call for continued close oversight. They welcomed progress in strengthening supervision and regulation, including of cross border activities, and encouraged additional initiatives to foster financial market development, including of hedging instruments, and improve financial inclusion.