External reserves bleed $1.43b in 11 weeks
By Jeph Ajobaju, Chief Copy Editor
Latest Central Bank of Nigeria (CBN) data shows that external reserves dipped 11 consecutive weeks to $40.39 billion on 19 January marking 11 consecutive weeks of decline from the $41.82 billion peak on 29 October 2021.
The reduction in October reversed 12 weeks of increase on the back of $4 billion Eurobond auction proceeds in September and rising crude oil prices.
Reduction persisted in the first three weeks of 2022 falling to $40.376 billion on 19 January from $40.51 billion on 31 December 2021.
This shows a $144 million year-to-date (YTD) decline by 19 January and means the reserves dipped by $1.45 billion in 11 weeks since 29 October.
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Decline caused by greater forex supply
Analysts argued that the declining trend is fuelled by increased foreign exchange (forex) supply in the bid by the CBN to stabilise naira exchange rate.
“The gross external reserves [are] expected to maintain [their] downward trend especially as visiting family and friends leave and dollar inflows dwindle.
“However, the impact of this is expected to be offset by higher oil prices, analysts at Financial Derivatives Company told Vanguard.
“Falling external reserves impedes the CBN’s ability to intervene in the foreign exchange market. In addition, the impact of travel bans will continue to negatively impact forex supply.
“Forex shortages amid high demand will lead to a depreciation in naira at the forex markets.”
CBN forex intervention
Over $32 billion forex was sold in 2021 largely due to significant intervention of the CBN in the market after it placed a ban on forex sales to bureau de change (BDC) operators.
Foreign reserves gained $2.76 million in September and $5.99 billion in October, but lost $611.01 million in value in November, and dipped by $66.17 million in December, leaving annual gain at $5.15 billion.
Nigeria’s reserves have declined in recent months as the CBN continues to intervene in the official forex market in order to stabilise the naira especially at a time when it is highly volatile in the black market.
CBN handling of external reserves
The CBN holds external reserves as assets used to back liabilities and influence monetary policy. They include foreign banknotes, deposits, bonds, treasury bills, and other foreign government securities.
These assets serve many purposes but are most significantly held to ensure that the government or its agency has backup funds if the naira rapidly devalues.