Home Business Naira in mixed fortunes as External reserves drop to 5mths low

Naira in mixed fortunes as External reserves drop to 5mths low


By Babajide Komolafe

Despite the renewed pressures on the external sector, Naira has appreciated in the Investors & Exporters (I&E) window of the currency market.

But this came at the backdrop of a decline in external reserves just as the exchange rate in the parallel market deteriorated.

Data obtained from the Central Bank of Nigeria, CBN, by Financial Vanguard shows that Nigeria’s external reserves dropped last week to $35.506 billion, the lowest level in five months since May 18th 2020 when it stood at $35.473 billion.

According to the data the reserves declined to $35.506 billion on Thursday November 19th from $35.613 billion recorded previous week.

This translated to week-on-week (w/w) decline of $107 million, the highest in 15 weeks since August 6th 2020.

Consequently, the external reserves had fallen by $1.02 billion since May 29th, 2020, when it peaked at $36.594 billion on the backdrop of the inflow of loans from the International Monetary Fund (IMF), the World Bank and the African Development Bank.

The sharp decline in the external reserves last week followed increased dollar injection by the CBN in its bid to address the sharp depreciation of the naira in the parallel market which persisted last week.

While the naira appreciated by 38 kobo in the Investors and Exporters (I&E) window last week, it suffered N12 naira depreciation in the parallel market, the biggest in 12 weeks.

According to data from FMDQ, the I&E window exchange rate dropped to N385.83 per dollar last week from N386.21 per dollar the previous week. This translated to 38 kobo appreciation for the naira.

However, data from naijabdcs.com, the live exchange rate platform of Association of Bureaux De Change Operators of Nigeria (ABCON) showed that the parallel market exchange rate rose to N482 per dollar last week, the highest in 12 weeks, from N470 per dollar the previous week, translating to N12 depreciation.

Analysts at United Capital Plc however projected that the naira will suffer further depreciation in the parallel market in the coming weeks, stressing that the factors driving the depreciation are not likely to abate soon.

They stated: “The recent pressure on foreign exchange (FX) rates is attributable to a number of factors: First, legitimate FX demand by manufacturers whose obligation to their foreign suppliers continues to increase.

“Additionally, elevated demand for dollars appear driven by festive season related importation in anticipation of yuletide sales as well as year-end travel linked demand. Finally, speculation by market participants who expect the naira to depreciate even further continues to weigh on the parallel rate.

“In our view, the current foreign exchange pressure is likely to be sustained through the end of the year as demand for festivities-related imports rises through December.

“We note that the CBN’s restrictive policies, targeted at reducing demand, may end up hurting businesses and forcing even more demand pressure on the parallel market.

“This may further widen the spread between official and parallel market rates. As such, any moderation in the parallel market rates will depend on a fundamental change in the factors currently affecting supply: low oil prices and the dearth of foreign capital inflows into the country.”

Vanguard News Nigeria

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