CBN’s naira defence threatened as forex reserves fall to $33.55bn

The ability of the Central Bank of Nigeria to defend the Nigerian currency has reduced on the back of the continued decline in the country’s foreign exchange reserves, the Financial Derivatives Company Limited has said.

Nigeria’s forex reserves fell further to a record low of $33.55 billion as of June 24, the latest data from the CBN show.

“We expect the external reserves to decline further towards $33 billion in the near term due to the lingering backlog of unmet forex demand,” analysts at Lagos-based FDC, led by foremost economist Bismarck Rewane, said in a new report.

They, however, said higher oil prices would slow the pace of depletion of the external reserves.

“Falling external reserves reduce the CBN’s ability to support the naira,” the analysts added.

The FDC noted that gross external reserves fell below the $34 billion threshold to $33.85 billion on June 15 from $34.51 billion at the end of the first half of May.

“This occurred despite higher oil prices ($74 per barrel) and could be partly attributed to the increase in the CBN’s forex sales to banks. The level of import and payments cover is down to 8.31 months from 8.47 months on May 14,” the analysts said.

The FDC noted that at the parallel market, the naira depreciated by 1.41 percent from N498/$ on June 1 to a high of N505/$ on June 15.

It said this occurred in spite of the increase in the average daily turnover by 29.16 percent to $149.31 million from $115.60 million in May.

The depreciation of the parallel market rate is driven by speculative activities, according to the analysts.

“We expect the exchange rate to trade at current levels at the parallel market in the near term on speculative trading,” they said.