Currency pressure will continue as Nigeria’s reserves shrink by $1.37bn in 6 months – The Sun Nigeria

By Chinwendu Obienyi

With rising crude oil price coupled with a weak macroeconomic environment, financial experts say they expect FX liquidity conditions to remain under pressure as foreign portfolio inflows remain weak and rising Foreign exchange reserves from crude oil revenues remain low.

According to data obtained from the Central Bank of Nigeria (CBN) website, Nigeria’s external reserves depreciated by $1.37 billion or 3.37% in the first six months of 2022 to 39. $16 billion as of June 30, compared to $40.52 billion in 2021.

External reserves are assets held in reserve by the CBN in foreign currency and these reserves are used to back liabilities and influence monetary policy.

Analysis by Daily Sun revealed that in January 2022, the CBN’s foreign exchange buffer was hovering at an average of $40 billion.

It then fell to $39 billion in three consecutive months (February-April) before reaching $38 billion in May 2022.

CBN data revealed that it remained stable at $38 billion in June and finally closed at $39.16 billion on June 30, 2022. Further analysis revealed that in January external reserves had fell $481.4 million or 1.19% to $40.04 billion, while in February they fell $121.4 million or 0.30% to 39, $86 billion.

External reserves in March decreased by $317.8 million or 0.79% to $39.55 billion and in April external reserves increased by $41.5 million or 0.1% to 39, 58 billion dollars, against 39.54 billion dollars at the beginning of the month under review.

Interestingly, external reserves decreased by $943.07 million or 2.39% to $38.48 billion, the largest drop in 2022, and eventually appreciated by $674.4 million or 1 .75% to close at $39.16 billion in June 2022.

The decline in external reserves comes amid steadily rising global oil prices and fears of a global economic shock from Russia’s invasion of Ukraine. According to the CBN, the daily price of crude oil in the six months of 2022 appreciated by 70.3% or $53.62 per barrel to $129.87 from $76.25 per barrel reported on December 31, 2021. .

Reacting to this development, analysts noted that continued inflationary pressures from high food and energy prices and the CBN’s growing intervention in the foreign exchange market are also a contributing factor.

Recently, the International Monetary Fund (IMF) warned that Nigeria’s external reserves could fall to $29.1 billion by 2024 due to lower oil prices, restricted access to the Euro- bonds and increased capital outflows.

According to the report, the country’s external position is weaker as foreign buffers are limited. Cordros Securities analysts in their second-half 2022 macroeconomic outlook titled; Heightened uncertainties amid grand policy unwind, said expect headline inflation to maintain upward pressure given rising gas and other energy prices, rising global food prices and the knock-on effect of higher transport costs in a context of pre-existing structural constraints.

“Furthermore, we expect FX liquidity conditions to remain under pressure as foreign portfolio inflows remain weak and foreign reserve growth from crude oil revenues remains weak. Therefore, we reaffirm that without further devaluation of the local currency at the IEW and without improved exchange flexibility, the CBN can comfortably maintain itself as an important foreign exchange provider in the various foreign exchange markets,” they said.

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