Nigeria’s foreign reserves down by $702m in May

As domestic demand on dollar continue to mount pressure on the nation’s external reserves, falling by $702 million in May to $26.3 billion from $27.08 billion it closed in April.

The latest figures provided on the official website of the Central Bank of Nigeria (CBN), showed that foreign reserves as at the end of April stood at $27.12 billion as against $27.86 on 31st of March 2016.

However, the evolution of the foreign exchange demand most especially dollars, in the country has been influenced by a number of factors such as the changing pattern of international trade, institutional changes in the economy and structural shifts in production.

While comparing the current statistics on the apex bank website to the equivalent in November, 2015, it was discovered that the country’s reserves under the care of the apex bank had depreciated by $3.6 billion.

The date also proved that the balance of the nation’s reserve in 2015 of the same period has however, brings the total drop of the reserves between May 27 of 2015 and 31st of May, 2016 to a whopping $3.20 billion, with balance of $29.59 against the $ 26.38billion.

However, the external reserve in months ago, specifically in February this year had dropped by 0.8 percent or $232 million from $28.091 million to $27.859 million while in the first month of the year, January 2016, fell by three percent or $908 million from $29.069 to $28.161 million.

The statistics further revealed that the external reserves had depreciated by 14.1 percent in 2015, moving from $34.46 billion as at December 31, 2014 to $29.069 billion as at December 31, last year.

This explained that the decline was due to the fact that the level of inflow into the reserves was lower than the level of outflow during the period.

It is worthy to note that Nigeria’s reserves continued a steady appreciation, rising by 0.2 percent within seven days in March as global oil price rose to $40 per barrel at the time.

Reserves which had begun a slow recovery since February having declined to $27.789 billion stood at $27.823 billion as at February 29 but had risen to $27.879 billion as at Monday March 7, 2016, according to the data provided by the CBN.

Although, speculative pressures may have remained relatively passive in the foreign exchange market, as exchange rates across segments maintained a relative stability in almost all the trading days of the week, although the wide spread between the official and parallel market rates remains.

Just last week Tuesday, after the Monetary Policy Committee (MPC) of the CBN rose from its two days meeting held in Abuja announced that it would adopts flexible foreign exchange market, in an effort to further curtail outflow of the external reserves.

Although, the MPC, introduce greater flexibility in the inter-bank foreign exchange market structure and to retain a small window for critical transactions.

According to the CBN Governor, Godwin I. Emefiele, “In a period of stagflation, the policy options are very limited, to avoid complicating the conditions, the Committee decided on the least risky option to hold. The foreign exchange market framework, now ready, the MPC voted unanimously to adopt greater flexibility in exchange rate policy to restore the automatic adjustment properties of the exchange rate.

Before now, the apex lender had pegged naira at N197 per US dollar, which has become increasingly unsustainable due to a shortage of hard currency stemming from the slump in oil revenues. market, in an effort to further curtail outflow of the external reserves.

Although, the MPC, introduce greater flexibility in the inter-bank foreign exchange market structure and to retain a small window for critical transactions.

According to the CBN Governor, Godwin I. Emefiele, “In a period of stagflation, the policy options are very limited, to avoid complicating the conditions, the Committee decided on the least risky option to hold. The foreign exchange market framework, now ready, the MPC voted unanimously to adopt greater flexibility in exchange rate policy to restore the automatic adjustment properties of the exchange rate.

Before now, the apex lender had pegged naira at N197 per US dollar, which has become increasingly unsustainable due to a shortage of hard currency stemming from the slump in oil revenues.

On the black market, the naira is trading 40 percent below the official rate as manufacturers and imports pay massive premiums to avoid hefty official currency curbs now blamed for tipping the economy towards recession.

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