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External reserves tumble by $5bn in 11 weeks

By on March 16, 2014

The Central Bank of Nigeria’s decision to keep defending the falling naira from the nation’s external reserves has put the reserves in free fall, tumbling by a whopping sum of $5bn in 11 weeks, according to statistics on the CBN website.

The latest CBN data showed that the foreign reserves balance, which was falling at the rate of $1bn every month, was now losing $1bn every week, confirming recent concerns raised about analysts over imminent devaluation of the naira.

The reserves which started the year with $43.5bn on January 2 fell $38.7bn on March 12, according to the latest data on the central bank website.

Specifically, the reserves have plummeted by $5bn in 11 weeks from $43.7bn on December 27 to $43.7bn on March 12, according to the data.

The reserves which are now falling at an overwhelming cascade was initially on the $43bn mark between December 23 and January 30. Between January 31 and February 12, the reserves were on the $42bn mark; and later fell to the $41bn mark between February 13 and 21. Later, the reserves started plummeting at a higher rate and were on the $40bn mark from February to 28 only.

Between March 3 and 10, the reserves was briefly on the $39bn mark before falling to the $38bn mark on March 11. As at March 12, which was the last balance on the reserves, it was $38.7bn.

In a bid to prevent the naira from crashing, the CBN had offered a total of $6.4bn to foreign exchange dealers at its twice-weekly regulated auction in the first weeks of this year.

The CBN offered $350m, $400m, $350m, $350, $350m $400, $400m and $400m, respectively on January 6, 8, 13, 15, 20, 22, 27 and 29.

Also, the central bank offered $400m, $400m, $400m, $400m, $600m, $400, $400 and $400m on February 3, 5, 10, 12, 18, 19, 24 and 26, respectively.

To save the naira from devaluation last year, the CBN defended the currency with approximately $26.6bn from the nation’s external reserves.

The bank sold about $26.6bn to currency dealers in 94 Foreign Exchange Dutch Auctions between January and December 2013.

The Managing Director, FDC, Mr. Bismarck Rewane, in the latest edition of its bi-monthly Business and Economic Update, noted that the nation’s external reserves had “fallen below the psychological resistance level of $41bn because of the increased frequency and magnitude of the CBN intervention in support of the naira.”

The turmoil, according to the report, has been exacerbated by the “unprecedented and unusual removal of the CBN governor.”

According to the report, the naira has been under speculative attack in the past four months.

The report read in part, “With this level of external reserves, Bank of America has downgraded the Nigerian currency-linked instruments on fears of further value haemorrhage in the market. A naira adjustment is only a question of time.

“Historically, exchange rate adjustments in Nigeria have always been a result of involuntary policy actions. Whilst a strong naira is a‘good to have,’ a realistically valued naira is a ‘need to have.’ Although we are convinced that a naira adjustment will take place during the next 18 months, predicting the timing of it is trickier.”

Also, a report by the Bank of America Merrill Lynch Global Research had recently predicted that the naira may weaken for the current levels of over N160 to N170.

The report noted that although the CBN had the political will to defend the naira, the dwindling amount in the reserves may undermine this effort.

 

 

[Punch]