Nigeria’s external reserves continued its depletion as the Central Bank of Nigerian (CBN) maintained its support for the naira, dropping by $537.45 million between January 4 and February 4, 2022 according to latest data on the website of the apex bank.
The external reserves which stood at $40.518 billion at the beginning of the year had declined to $39.98 billion as of February 4, 2022.
The dip in the reserves is a reflection of the CBN’s meeting of foreign exchange demands from manufacturers, importers, travelers, and students studying abroad.
Nigeria’s external reserves hit a three-year high of $42 billion in October last year. The reserves had since dropped by 7.14 percent, or $3 billion.
Analysts at Cordros Research say “in our opinion, the CBN has enough supply to support the FX market over the short term, given inflows from the recently issued Eurobond and the IMF’s SDR.
“However, foreign inflows are paramount for sustained FX liquidity over the medium term, in line with our expectation that accretion to the reserves will be weak given that crude oil production levels remain quite low. Thus, FPIs which have historically supported supply levels in the Investors’ and Exporters window (I&E) providing up to 53.8 per cent of forex inflows to the in 2019, will be needed to sustain forex liquidity levels.
“Hence, we think further adjustments in the NGN/USD peg closer to its fair value and flexibility in the exchange rate would be significant in attracting foreign inflows back to the market.”
The IMF is projecting that the reserves of the country will continue to dip this year on continued support for the foreign exchange, dropping to $35 billion by the end of 2022.
Noting that Nigeria’s capacity to repay the Fund is adequate, the IMF encouraged the country to address data gaps to allow timely and clear assessments of reserve adequacy.
The Fund in its latest Executive Board 2021 Article IV Consultation with Nigeria welcomed the removal of the official exchange rate and recommended further measures towards a unified and market-clearing exchange rate to help strengthen Nigeria’s external position, taking advantage of the current favourable conditions.
It noted that exchange rate reforms should be accompanied by macroeconomic policies to contain inflation, structural reforms to improve transparency and governance and clear communications regarding exchange rate policy.
Meanwhile the naira closed yesterday weaker than it opened trading activities, selling at N416.67 to the dollar at the Nigeria Autonomous Foreign Exchange market, compared to N415 which it closed on Monday. On the streets, the naira remained stable, selling at N570 to the greenback