A herd of economic and finance experts have concluded that with foreign reserves at above $30 billion, the Central Bank of Nigeria (CBN) is in a better position to continue dollar supply to the foreign exchange (forex) market in defense of the naira.
Latest figures from the nation’s apex bank show that the reserves which have experienced a steady day-on-day increase of between 2.3 and 2.75 per cent since January 5, 2017, closed the trading week above $30 billion.
Analysts at a Lagos based investment securities company they expect the Apex Bank to continue its drive to boost forex liquidity in the market as current external reserves level of $30.3 billion (March 15, 2017) suggests that “the CBN is in a healthy position to continue dollar sales to the market.”
Mr Johnson Chukwu, Managing Director at Cowry Assets Management Limited in a note to investors, stated that further stability in the foreign exchange market is expected with possible appreciation of the naira against the United States dollar subject to CBN’s level of intervention based on the bank’s assurances of dollar availability.
According to him, “the weekly movements in most dated forward contracts at the interbank OTC segment suggested future stability of the Naira viz-aviz the US greenback amid an increase in the foreign exchange reserves – external reserves increased week-on-week by 0.86 per cent to US$30.27 billion as at Wednesday, 15 March 2017. The 1 month, three months, six months and 12 months forward contracts remained stable w-o-w at N315.34/USD, N323.27/USD, N331.53/USD and N349/USD respectively.”
Also, while citing a 2015 study by Tule et al, which sought to determine an optimal Foreign Exchange Reserves for Nigeria a Financial Economist and Chartered Banker Dr Uche Uwaleke said Nigeria’s minimum core foreign reserves level is US$32 billion (being the equivalent of 7.2 months of import). Though close to the $32 billion benchmark, Uwaleke in a Paper Presented at the 23rd Seminar for Finance Correspondents organised by the CBN in Sokoto, said the International Monetary Fund (IMF) recommends three months of import cover as a minimum benchmark for reserve
“The foreign exchange market has also recently witnessed increased liquidity on the back of a rise in Foreign Reserves ($30.3 billion as at 16/03/2017) which we link to a combination of deliberate effort by the CBN to shore-up the reserves and the improvement in global oil prices (currently at $50.05/b) as well as gains from improved domestic oil output, which has seen production improved to 2.1mb/d (according to NNPC),” Robert Omotunde, a research analyst stated in an email note.
Bismarck Rewane, Managing Director of Financial Derivatives Company Limited noted the easing of pressures on the local currency, suggests that the Central Bank of Nigeria is beginning to do the right things, which should be sustained. Pulling the country out of recession, he emphasised, requires significant spending on capital projects which will trigger a multiplier effect leading to a gradual lessening of recession from the second quarter of 2017.