How external reserves shed $372.3m in 7 days

*As foreign reserves steady at $46.7bn
The nation’s external reserves in seven days of this month have depreciated by $372.3million to $46.7 billion from $47.07 billion it stood as at the beginning of August 2018, checks by The Daily Times has revealed.

The latest figure obtained from the official website of the Central Bank of Nigeria (CBN) over the weekend showed that the foreign exchange buffer steadied at $46.7 billion as at Thursday last week, against $47 billion it stood on April 13, 2018.

Although, the increase in the reserves was due to steady hike in global oil prices, but for the fifth consecutive week now, has been on the decline mode.

For instance, it depreciated by $253.69 million to stand at $46.76 billion, against closing figure of $47.01 billion in the previous week.

Nevertheless, the foreign reserves have gained total sum of $7.9 billion or 20.47 per cent while compared current balance of $46.7 billion as at August 9, 2018 to $38.75 billion it closed in 2017.

Financial analysts, however, believe that the decline in the foreign reserve in July was driven by increased dollar sales by the CBN, and the slight drop in price of crude oil price from $73 barrel to $72.21 a barrel as at August 7, 2018.

The naira buffer has come under heavy pressure, forcing the CBN to woo local businesses importing goods from China to use the Yuan instead of the Dollar in its effort to support the naira and boost reserves.

The apex bank explained that the currency swap is aimed at providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses thereby reducing the difficulties encountered in the search for third currencies.

Commenting on this development, Associate Professor and Head, Banking & Finance department Nasarawa State University, Uche Uwaleke, said the currency swap will improve Nigeria economy.

He said, “When we talk about our reserves today, it is composed of Dollar. It means that we are over dependent on one currency and something happens, then our reserves in danger.

“The currency swap will diversify foreign exchange management by CBN. It is going to boost foreign reserves, appreciate the Naira because the pressure on Dollar will reduce.”

He said the currency swap in short-mid-term will impact positively on the nation’s economy.

“The swap is going to last for two years but renewable,” he said.

He explained further that with the agreement, China investors might be complied by Federal Government to come to establish manufacturing companies in Nigeria.

He said: “If that happened, it is going to create jobs and increased production. I see more of Chinese companies producing in Nigeria and that again will is expected to grow our GDP.

By the time we fix power, road and security that will encourage Chinese investors to invest in Nigeria economy. For the two countries, it is a win-win situation.”

Meanwhile, Naira remained flat against the Dollar at the parallel market at N360/ dollar, even as the CBN intervened the sum of $327,440,499.50 into the interbank retail Secondary Market Intervention Sales (SMIS).

This is in addition to the sale of CNY 69,707,333.39 in the spot and short-tenored forwards.

The figures obtained from the CBN on last week Friday showed that the Dollar-denominated interventions were only for concerns in the agricultural and raw materials sectors.

The Acting Director, Corporate Communications at the CBN, Mr. Isaac Okorafor, said that the exercise which was in tune with the CBN guidelines, was for the payment of Renminbi denominated Letters of Credit for agriculture as well as raw materials.

He added that the sales in the Chinese Yuan was through a combination of spot and short-tenored forwards, arising from bids received from authorized dealers.

While noting that availability of Renminbi was sure to ease pressure on the Nigerian foreign exchange market, Okorafor attributed the relative stability in the foreign exchange market to the intervention of the CBN as well as the sustained increase in crude oil prices in the international market.

He further assured that the CBN would remain committed to ensuring that all the sectors continue to enjoy access to the needed foreign exchange by Nigerians.

Meanwhile, $1 exchanged for N360 at the Bureau de Change (BDC) segment of the foreign exchange market, while CNY 1 exchanged for N53.35.

The Naira remained stable during the week, as the pair closed flat at N360 in the parallel market – for the fourth consecutive week.

Conversely, the pair strengthened by 0.18 per cent to N362.00 in the Investors &Exporters Foreign Exchange (I & E FX) window.

It is also worth stating that in the CBN SMIS window (also reported by the FMDQ), the naira weakened significantly by 6.67per cent, to close at N352.00, against N330.00 in the previous week.

Total value of trades in the I & E FX increased by 51.46per cent to $738.45 million, with bulk of trades (99.87per cent) still-consummated within the N360-N369/Dollar band.

In the FX forwards market, the Naira against dollar appreciated across all major dated contracts – 1-month (+0.23per cent), 3-month (+0.28per cent), 6-month (+0.61per cent), and 1-year (+0.99per cent) — to N364.73, N370.93, N4381.83, and N400.24, respectively.

According to analysts, the foreign exchange market outlook remains stability, as higher oil prices and stable production continue to support growth in the foreign reserves, providing the apex bank sufficient legroom to sustain its usual interventions in the currency space.