Hope rises as reserves rebound to $25.8b in New Year

With persistent and gradual gains in the last three months, the nation’s foreign exchange (forex) reserves ended 2016 at $25.78 billion, after gaining $420 million in seven days.

The resurging reserves’ profile is raising the hopes for calm forex market activities in 2017, if the trend subsists, as it would curtail panic and speculative demands, which affect the naira value.

The rise in the stock of forex reserves had defied mounting pressure from demand and series of interventions through special auctions by the regulator in the last three months.

The last time the reserves were at this level was in the middle of August 2016, with average growth of about 2.8 per cent from the end of October till date.

At $25.78 billion, the reserves recorded about $1 billion increase, or 4.2 per cent rise month-on-month, up from $24.77 billion at the end of November, as marginal rise in the international oil prices and production remained relatively stable.

However, at the same level too, it declined by 11.7 per cent from $29.13 billion as at December 2015, due to fallen price of crude oil, which depleted Nigeria’s forex earnings’ capacity and huge demand by importers.

A combination of exchange rate stability at the interbank market, slight improvement in capital importation and the country’s management of the foreign exchange policy through the Central Bank of Nigeria (CBN), have contributed to the assessed reserves’ accretion.
Six months ago, the CBN inaugurated the flexible exchange rate policy as a measure to contain the declining value of the naira, as well as attract forex inflow.

As part of the measure, it also introduced the Forwards Market, where people can buy forex for future use at the current rate.
CBN has so far contracted over $3.8 billion and redeemed the maturing ones, even as it sold about $1 billion at the market last week to clear a backlog of dollar obligations in selected sectors.

The apex bank had recently urged banks to submit their backlog of dollar demand from fuel importers, airlines, raw materials and machinery for manufacturing firms and agricultural chemicals for the special forex intervention.

In November, CBN said it offered real sector operators- manufacturers and other strategic actors in the economy, access to about 7,792 requests for foreign exchange valued at over $867 million through the inter-bank window.

A summary of the forex utilisation for October 2016 indicated that the raw materials sector received the highest allotment, getting access to foreign exchange valued at $355.7 million or 40.99 per cent of the total value of Forex utilisation for the month put at $867.8 million.
The forex reserves have also recorded an increase of $1.46 billion in the last two months, from a low of $23.9 billion in October to $25.36 billion presently.

In the same period in November, the reserves recorded an increase of $589 million, after weeks of consistent and gradual gains, despite demand pressure, bringing it to $24.49 billion, up from $23.91 billion. That was a 2.5 per cent rise.

It also closed up a two-month decline to $247 million, after losing $836 million between September ($24.74) and October ($23.91).