Nigeria’s external reserves have declined by 0.68 per cent to $36.620bn as of August 12, 2024, from $36.872bn recorded on August 7, 2024, according to the Central Bank of Nigeria, CBN.
The development comes after it increased to $37.88bn as of July 15, 2024, from $34.76bn as of June 2024.
CBN had in July, predicted that Nigeria’s external reserves could reduce slightly in 2024. This was disclosed in the maiden edition of its ‘Macroeconomic Outlook: Price Discovery for Economic Stabilization’ report.
CBN had attributed the projected decline to debt service and other obligations.
The outlook said, “the external reserves, which stood at $33.09bn in 2023 could reduce slightly in 2024. This is on the assumption of continued payments of outstanding foreign exchange forward obligations, matured foreign exchange swaps, and debt service. The expected improvement in crude oil earnings, together with recent reforms in the foreign exchange market and energy sector, however, would cushion the drop in external reserves.
On July 8, Nigeria’s foreign reserve crossed $35.05bn, the first time in about a year and has remained above that mark since then.
A member of the Monetary Policy Committee, MPC, Bala Moh’d Bello in his personal statement at the last meeting in July 2024, had emphasized how essential it was to maintain exchange rate stability to ensure stable prices, given the significant impact of exchange rate pass-through on import prices and inflation.
He said, “the central bank has made substantial efforts to stabilize the foreign exchange market, which has led to increased foreign portfolio investment inflow and a reduction in exchange rate volatility. In addition to current measures being taken by the bank, medium and long-term strategies are being explored to ensure that the exchange rate settles at a market determined equilibrium level.”
External reserves refer to assets held by the CBN in foreign currencies, including banknotes such as the United States dollar, bonds, treasury bills, foreign government securities, and commodities such as gold. These reserves serve multiple functions, including influencing monetary policy and supporting the country’s currency. They act as a safeguard to meet external obligations, manage exchange rates, and foster confidence in the Nigerian economy. Additionally, external reserves play a crucial role in facilitating international trade and ensuring stability in the economic landscape.
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Another member of the MPC, Lydia Shehu Jafiya also said in her personal statement that foreign exchange inflows improved by 38.26 per cent (month-on-month), between April and May 2024, driven by increased receipts of oil and non-oil proceeds. She noted that gross external reserve position at the end of June 2024 could provide 7.59 months cover of import of goods and services and 10.88 months cover of import of goods. The foreign exchange market also witnessed relative stability and convergence of rates.
“The foreign exchange market has witnessed relative stability in the recent past, as indicated by the narrowing spread in different segments of the market, driven by the efficiency of the market mechanism in foreign exchange allocation and price determination,” she added.
Mustapha Akinkunmi, a member of the MPC also said the naira depreciated to ₦1,605.50 on July 19, 2024, from ₦1,525.00 on June 28, 2024. Gross external reserve stood at $34.88bn as of June 2024, projected to be about $32.93bn at the end of May 2024. This reserve could cover imports for about 11 months of goods and about 8 months of goods and services.
The CBN Governor, Olayemi Cardoso, while speaking on possible solutions to the deep, said particular attention needs to be paid to developments in the foreign exchange markets, and that the outlook for the exchange rate in the short to medium term, given its major impact on inflation.
According to him, the recently observed relative stability of the exchange rate is owed to the increased confidence of the market in the actions of the MPC to deliver the objective of bringing inflation within target.
“This fragile equilibrium must, however, be carefully managed in order not to jeopardize the achievements so far in attracting more capital flows to help sustain the recent stability in the market,” he said.
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