Foreign reserves at $31.22bn reaffirm CBN’s capacity to defend naira
Nigeria’s external reserves on Tuesday August 8, 2017 rose to $31.22 billion from its low level of $23.9 billion in October 19, 2016. This, analysts believe reaffirms the capacity of the Central Bank of Nigeria (CBN) to continue its defence of the local currency.
The price of Brent crude oil as at 2.54 pm (August 9, 2017) stood at $52.41 per barrel.
The increases in the foreign reserves are attributable to oil price increase and relative stability in the Niger Delta.
Analysts said last night, that the renewed increase in the country’s foreign exchange buffer will help boost investor confidence in the economy.
“This is positive for the economy as this can confidently influence the view of foreign investors on the economy”, Ayodeji Ebo, managing director, Afrinvest Securities limited, said.
Ebo said despite the intermittent foreign exchange interventions by the CBN, the rise in external reserves serves as a boost and invariably reaffirms that the CBN has sufficient firepower in its arsenal to defend the naira.
The Central Bank has been intervening on the official market in the last few months, to try to narrow the spread between rates on the official market and black market. It has sold over $5 billion since February.
In addition to higher crude oil prices and improved production, “I will attribute the rise in external reserves to more of improved transparency and accountability of crude oil proceeds by the Federal Government.
“I suspect the revenue leakages experienced in the past have been curtailed, hence despite the drop in global oil prices, the accretion of the reserves has been on track. The continued accretion of the external reserves will result into more foreign investments, as well as bolster investor confidence”, he said in an emailed response to BusinessDay.
In his emailed response, Taiwo Oyedele, PwC head of Tax and Regulatory Services West Africa Tax Leader, said there has been improved liquidity in the foreign exchange market over the past few months, since the introduction of the investors’ and importers’ window, where exchange rates are largely market-determined.
In addition, the average price of crude oil per barrel has been slightly above the benchmark price used in the 2017 budget, along with the relatively stable oil production levels. Furthermore, the overall level of imports has reduced significantly, compared to the pre-forex crisis levels. The combined effect of these factors explain the accretion in the country’s foreign reserve, he said.
“This is a welcome development for the economy and the trend is expected to continue to the extent that we sustain and enhance the relevant policies, and provided oil prices remain stable”, Oyedele said.
The nation’s reserves recorded its highest level in the last three years on May 2, 2013 rising to $48.9 billion, when the price of crude oil was $103.03 per barrel.
Godwin Emefiele, governor of the CBN, had at the January Monetary Policy Committee (MPC) meeting, said rising oil prices have seen foreign exchange reserve inflows through the CBN rise by well over 82 percent, helping push the external reserves to the current level.
Emefiele had said the CBN would continue to provide dollars, with priority given to manufacturing industries needing to import raw materials and spare parts. He added that the Apex bank would “from time to time” intervene in the foreign exchange market to ensure the (official) exchange rate did not go beyond its expectations.
However, foreign exchange daily turnover at the investors and exporters window rose significantly to $162.26 million, as against $96.03 million recorded the previous day. This represents a 68.98 percent increase.