Forex reserve plunges further to six months import cover
THE plummeting profile of the foreign exchange reserves, which has been a constant feature since the beginning of the year, has finally hit 2010 record low to $29.3 billion from $29.8 billion of the previous week.
The downward trend, which has been riding on the back of falling international oil prices and the resolve by the Central Bank of Nigeria (CBN) to defend the naira, has already resulted to about $5 billion loss, representing 16.9 per cent in 2015.
In a report from Afrinvest Securities Limited, titled: “Nigerian Reserves at Record Low…Time to Float the Naira?,” it showed that declines were at their highest on February 16 and 23 at 1.2 per cent each, which correspond to the postponement of the elections and shutdown of the Retail Dutch Auction System (RDAS) respectively.
The report showed that reserves had declined at a daily average of 0.2 per cent before and after the official window was scrapped, an indication that rate of decline did not moderate despite the CBN’s efforts.
However, at the current level of reserves, the country’s Import Cover (ratio of Foreign Reserves to average monthly import) can barely cover six-months of import (International standard), the securities company said.
“While inflow to the reserves remained impaired by lower prices of crude oil in the global market (as oil revenue accounts for approximately 90 per cent of the reserves accretion), we suspect that the apex bank’s monetary policy committee may be moved to take a major decision on exchange rate at its next seating in May.
Perhaps, taking the bull by the horns to float Nigeria’s exchange rate,” analysts at the company said.
At the forex market, the naira had started last week at the rate of N199.11/U$ at the interbank market, appreciating by two kobo compared to the previous week’s record.
However, throughout the week, the local unit traded at a tight range, oscillating between N199.11/$ and N199.13/$, even as the market witnessed inflows worth $300 million from autonomous sales by the Nigerian National Petroleum Corporation.
The apex bank in its latest move to stabilize the naira has limited the naira debit card spending to $50,000 yearly from $150,000 for overseas transactions.
Besides, CBN directed commercial banks to peg overseas customers’ daily cash withdrawals at $300, in strategy that points to inadequate foreign exchange to defray the rising spending by oversea cardholders.
The money market rates, at the beginning of last week, surged as the opening balance of liquidity was at a low level of N89.9 billion, stoking the scramble for funds worth N88.1 billion at the Standing Lending Facility by deposit money banks.
Consequently, the Open Buy Back OBB and Overnight rates hit their week’s high of 78.3 per cent and 80.3 per cent respectively on Monday, but eased off on Tuesday as a result of improvement in liquidity opening balance at N108.6 billion, by 2.5 per cent and 1.8 per cent to settle at 75.8 per cent and 78.4 per cent respectively.
The scramble for liquidity also reduced to on Wednesday, with money market rates dropping to 29.2 per cent (OBB) and 30.1 per cent (Overnight), while liquidity opening balance of N106.8 billion on Thursday, hit the OBB and Overnight rates further to settle at 11.2 per cent and 11.5 per cent respectively.
The rates however, rose on Friday to 13.1 per cent for OBB and 13.4 per cent for Overnight, despite the maturing Open Market Operations bill worth N188.4 billion on Thursday, which heralded Friday’s transactions with opening liquidity balance of N215.6 billion.
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