Foreign reserves resume upward movement, gain $801m to $43.13bn in 12 days

In 12 days of December, the nation’s external reserves gained $801 million despite Central Bank of Nigeria (CBN) increased intervention in the foreign exchange market where millions of dollars are spent weekly ostensibly to support the naira.

After recent depletion of the reserves on the heels of drop in global oil prices and attendant decline in foreign earnings accretion, the external reserves rose by 1.89 per cent to $43.13 billion from $42.33 billion between December 3 and December 19, 2018.

The nation’s external reserves which opened this year at $38.76 billion closed at $40.69 billion end of January, and hit $42.49 billion end of February.

By end of the first quarter of 2018, the external exchange buffer had gained $7.49 billion after crossing the $46 billion mark to $46.26 billion on March 29, 2018.

Rising in April by $986 million or 2.1 per cent to $47.49 from $46.51 billion, the upswing was however punctuated in May when it hovered between $47.7 billion and $47.6 billion. It turned flat at $47 billion in June.

By end of half year 2018, however, the reserves had added $9 billion from $38.7 billion it opened this year to $47.8 billion as at June 29, 2018.

But depreciation set in on the back of falling oil prices, repatriation of funds by the foreign portfolio investors (FPIs), and sustained intervention in the foreign exchange market by the CBN to defend the local currency from further loss in value against the Dollar.

Consequently, the value of the reserves depreciated by $6.04 between June and November 8, 2018 when it closed at $41.75 billion.  In July and August, the external reserves closed lower at $47.12 billion and $45.84 billion respectively.

Some FPIs in the fixed income market did not roll over their matured investment while others in the equity market sold down their shares ahead of 2019 elections amid political uncertainty.

In order to ensure foreign exchange stability and enhance US dollar liquidity, the lender of last resort, in June 2018, increased dollar supply to Bureau De Exchanges (BDCs) by 50 per cent and mandated each BDC to purchase $60,000 per week, directed banks to sell dollars across the counter to all travellers with valid documents and also signalled the use of stop rates as against increasing Monetary Policy Rate (MPR) beyond 14 per cent in order to stem the tide of sell-offs by FPIs.

• 2018 2nd Quarter: Insurance industry records 6 .07 per cent growth — NAICOM

The Governor, CBN Mr. Godwin Emefiele had explained at the 2018 annual bankers’ dinner of the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos that the country’s overdependence on crude oil for foreign exchange (FX) revenue meant that shocks in the oil market were transmitted entirely to the economy via the FX markets as manufacturers and traders who required forex to purchase their inputs as well as goods, were faced with a depleting supply of foreign exchange in the country.

According to him, the impact of this decline on our reserves was evident in the rise in the value of the US Dollar relative to the Naira;and a rise in the Consumer Price Index due to the increase in the cost of imported inputs and goods. In a bid to contain rising inflation and to cushion the impact of the drop in FX supply on the Nigerian economy, the Bank took three bold steps;

He noted that the apex bank, firstly, tightened money supply in order contain inflation while improving yields in local bonds, which attracted the attention of foreign investors.

“Secondly, we analyzed our import bill and encouraged manufacturers to consider local options in sourcing their raw materials, by restricting access to foreign exchange on 41 items. Third, the Investors and Exporters FX (I&E) window was introduced, which allowed investors and exporters to purchase and sell foreign exchange at the prevailing market rate.

“The impact of these three measures led to an increase in foreign exchange inflows into the country; Transactions in the I&E FX window reached $24 billion ($6 billion net inflows) in 2017 and Nigeria’s foreign exchange reserves rose to over $48 billion at the end of May 2018 from $23 billion in October 2016.”