External reserves to drop below $37.5bn in February
The nation’s external reserves are expected to continue the seven months downward trend to drop below $37.5 billion by the end of this month. Last month, the reserves dropped to the lowest level since October 2017 (24-months), falling further by 1.4 percent or $539 million to $38.056 billion as at January 30 from $38.595 billion at the end of December 2019. Recall that the reserves, after falling persistently for seven months, from peak of $47.989 billion on July 5, 2018, to $42.296 billion February 28, 2019, commenced steady upward trend which peaked at $45.175 billion on June 10, 2019.
But, after four weeks fluctuation which ended on July 5 at $45.149 billion, the reserves commenced a six months downward trend which resulted to $6.83 billion or 8.4 percent decline as at January 9, 2020. The sharp decline in reserves was due to decline in dollar inflows from Foreign Portfolio Investors, FPIs, and increased dollar sales by the CBN in order to defend the naira.
CBN supports naira with $34bn in 2019 Financial Vanguard analysis shows that the CBN supported the naira with $34.3 billion injection into the foreign exchange market in 2019. This however represents 14 percent, year-on-year (y/y) decline when compared with the $39.9 billion injected in 2018. Further analysis showed that dollar sales to bureaux de change, BDCs, dominated CBN invention in 2019 accounting for $12.65 billion or 36.8 billion.
Dollar sales in the I&E window came second with $5.55 billion or 16 percent. Quarterly analysis showed that the CBN injected $6.9 billion in the first quarter (Q1’19), up by 25 percent from $9.18 billion in Q4’18. Dollar injection by the apex bank, however, dropped marginally by 6.2 percent to $7.33 billion in Q2’19, but rose by 37 percent in Q3’19 before falling by 1.2 percent to $9.98 billion in Q4’19. Naira appreciates as CBN sustains forex intervention Financial Vanguard analysis showed that the $539 decline recorded in January was about half the average monthly decline of $1.11 billion in the second half of 2019 (H1’19).
This was due to the $53 million week-on-week increase recorded in the third week of January, the first in six months, a development prompted the upsurge in oil revenue triggered by 6.3 percent rise in crude oil price, in the first seven days of the month, courtesy of the tension generated by the US killing of Iran’s General Qasem Soleimani, and the latter’s retaliation with missile strikes on two US military bases in Iraq. Weak dollar inflow
However, the reserves resumed downward trend last week, resulting to w/w decline of $197 million between Thursday, January 23 and Thursday, January 30, as oil prices receded amidst weak dollar inflow from foreign portfolio investors, while the Central Bank of Nigeria, CBN, resumed intervention in the foreign exchange market to curtail the seven weeks depreciation of the naira in the parallel market and in the Investors and Exporters, I&E, window.
As a result of the apex bank’s intervention, the naira appreciated by N2 in the parallel market in January as the exchange rate of the market dropped to N358 per dollar on January 31, from N360 per dollar on December 31, 2019. The naira similarly gained 54 kobo in the I&E window in January, as the indicative exchange rate of the window dropped to N363.9 per dollar on January 31 from N364.51 per dollar on December 31, 2019. Vanguard