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Foreign exchange reserves drop to $38.7bn

By on November 4, 2014

The country’s foreign exchange reserves fell 1.94 per cent month-on-month to stand at $38.76bn on October 29, the lowest level in more than three months, according to data from the Central Bank of Nigeria.

The reserves also dropped 14.28 per cent year-on-year, compared with $45.22bn the same time last year. The reserves were last seen at the current level on July 21, when they stood at $38.72bn.

In recent times, there has been continued depletion of the nation’s foreign reserves, occasioned by the CBN’s determination to defend the naira by all means.

The CBN had since last month increased the amount of dollars sold at its twice-weekly foreign exchange auction, and also sells dollars directly to banks on the interbank market to provide support for the naira and calm the market.

The naira has been under pressure over the past five weeks from falling global oil prices, which has caused offshore investors to cut back their positions in the debt and stock markets.

The foreign exchange reserves have declined 13 per cent this year, to $39.3bn as of October 27 as the CBN sold dollars to prop up the naira, and as oil production missed estimates.

In a note released on October 28, Ecobank Research says, “The naira appreciated 0.4 per cent against the dollar last week. The appreciation was driven by increased dollar supply by the CBN via OTC intervention in addition to around $1bn sold at the weekly RDAS auctions last week.”

According to the report, the naira outlook in the run-up to the forthcoming election is undermined by risk of election-related spending pushing liquidity above target and from further oil price weakening.

“Notwithstanding, the CBN Governor’s statement to sustain monetary policy stance until after 2015 election, inter-bank NGN will continue to trade between $1:NGN164-165,” says Ecobank.