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CBN defends naira with $17.58bn in six months

By on July 11, 2014

In a bid to save the naira from further depreciation, the Central Bank of Nigeria depleted the nation’s external reserves by $17.58bn in the first half of this year as it battled to maintain a stable exchange rate, investigation by our correspondent has shown.

Calculations made from the figures obtained from the CBN website on Wednesday revealed that the central bank sold a cumulative sum of $17.58bn to 50 currency dealers at the Retail Dutch Auction System between January and June this year.

According to the calculations, the central bank sold the highest amount of dollar in the month of March, offering $3.58bn; while it sold $2.58bn in May, the least for the period under review.

The bank also sold $3.1bn in the month of February, making it the second highest amount in the period; while it sold $2.98bn in the month of January.

The statistics showed that $2.62bn was sold in April, while $2.75bn was sold in June.

In summary, the CBN sold $9.628bn during the first quarter of the year and also sold the sum of $7.952bn in the second quarter at the Foreign Exchange Dutch Auctions.

The $17.58bn sold in the first half of the year is about 65 per cent higher than the $10.68bn sold in the similar period of last year.

The amount the central bank sold at the Wholesale Dutch Auction System in the first six months were January, $833m; February, $1.2bn; March, $1.9bn; April, $2.15bn; May, $2.0bn; and June, $2.65bn.

Financial and economic analysts said the 65 per cent increase in demand for foreign exchange during the first half of the year was too enormous; pointing out that the unfortunate situation was responsible for the huge depletion of the nation’s foreign reserves.

The Head, Research and Intelligence, BGL Plc, Mr. Femi Ademola, enumerated a number of reasons for the increased demand for foreign exchange during the six-month period.

These, he explained, included the gradual flow of funds from Nigeria to the United States by portfolio investors owing to the quantitative easing in the US; the gradual dollarisation of the economy by politicians as elections approach, which had fuelled an increased the demand for the greenback; and fiscal leakages that had made investing in Nigeria more risky for foreign investors, who were now moving their funds overseas.

Others are increasing activities of Boko Haram insurgents in the North-East that have also increased portfolio outflows; and the stringent provisions of the Petroleum Industry Bill that has made International Oil Companies to start divesting from Nigeria, thereby making more forex to leave the country.

“The leadership crisis at the CBN during the earlier part of the year made some investors to take their funds overseas. This contributed to the demand for dollars during the first part of the year,” Ademola added.

The Head, Research and Investment, Sterling Capital, Mr. Sewa Wusu, while noting that the increase in demand for foreign exchange at the RDAS during the first half of the year had led to the depletion of the reserves, however, said there were legitimate and illegitimate demands during the period.

He said, “The legitimate demands are from genuine end-users who do so for the purpose of paying for importing goods or paying for certain services overseas. This is because Nigeria is an import-dependent economy.

“However, the illegitimate demands come from the activities of politicians who may require it for the purpose of funding election campaigns. This is among the reasons why the CBN is trying to restructure the Bureau de Change segment of the forex market in order to ascertain legitimate demands. The demand from that segment of the market is increasing.”

Wusu equally observed that the activities of speculators, who demanded for dollars for fear that the CBN wanted to devalue the naira during the first half of the year, might have caused the increase in demand.

He also hinted that money laundering activities that usually accompanied elections might have also contributed to the demand.

Wusu said the new CBN Governor, Mr. Godwin Emefiele, who had committed himself to the defence of the exchange rate, had started addressing the issues, especially with the recent reforms in the BDC segment of the market.

In a bid to save the naira from further devaluation last year, the CBN defended the currency with approximately $26.6bn from the external reserves.

 

 

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