Decline of 0.68% in External Reserves Following CBN Projection

According to data from the Central Bank of Nigeria (CBN), Nigeria’s external reserves decreased by 0.68 percent to $36.620 billion as of August 12, 2024, from $36.872 billion on August 7, 2024.

This development follows an increase from US$34.76 billion as of June 2024 to US$37.88 billion as of July 15, 2024.

The CBN had forecast in July that Nigeria’s foreign reserves may decline somewhat by 2024. The first version of their paper, “Macroeconomic Outlook: Price Discovery for Economic Stabilization,” revealed this.

The predicted drop was ascribed by the apex bank to debt service and other commitments.

According to the forecast, the external reserves, which were $33.09 billion in 2023, would marginally decline in 2024. This is predicated on the continuous payment of debt service, matured foreign exchange swaps, and outstanding foreign exchange forward obligations.

However, the anticipated increase in crude oil earnings and the most recent energy and foreign exchange market reforms would offset the decline in external reserves”.

Nigeria’s foreign reserve surpassed $35.05 billion on July 8 for the first time in about a year, and it has been above that amount ever since.

In his personal statement during the most recent meeting in July 2024, Bala Moh’d Bello, a member of the Monetary Policy Committee (MPC), emphasized the importance of maintaining exchange rate stability in order to ensure stable prices, given the significant impact that exchange rate pass-through has on inflation and import prices.

“The central bank has made substantial efforts to stabilise the foreign exchange market, which has resulted in a reduction in exchange rate volatility and an increase in the inflow of foreign portfolio investments,” he stated. To make sure that the exchange rate settles at a level of equilibrium decided by the market, medium- and long-term plans are being investigated in addition to the current actions being taken by the Bank.

The term “external reserves” describes the foreign currency assets held by the CBN. These include commodities like gold, bonds, Treasury bills, foreign government securities, and banknotes like the US dollar. These reserves underpin the nation’s currency and have an impact on monetary policy, among other things. They maintain exchange rates, serve as a safety net for fulfilling obligations to other countries, and promote trust in the Nigerian economy. Furthermore, the presence of foreign reserves is essential for both international trade and economic stability.

In her personal statement, Lydia Shehu Jafiya, another MPC member, stated that higher receipts of oil and non-oil revenues were the main cause of the foreign exchange inflows’ improvement of 38.26% (month over month) between April and May 2024.

She pointed out that by the end of June 2024, the gross external reserve position might cover the import of goods and services for 7.59 months and the import of products for 10.88 months. Rate convergence and relative stability were also observed in the foreign currency market.

“The narrowing spread in different market segments indicates that the foreign exchange market has experienced relative stability recently, which is driven by the efficiency of the market mechanism in foreign exchange allocation and price determination,” the speaker continued.

According to Mustapha Akinkunmi, a member of the MPC, on July 19, 2024, the value of the naira fell from ₦1,525.00 on June 28, 2024 to ₦1,605.50. As of June 2024, the gross external reserve was estimated to be US$34.88 billion, with an estimated US$32.93 billion by the end of May 2024. This reserve he said could cover imports for about 11 months of goods and about 8 months of goods and services.

Channels Television, however, saw an update on Wednesday that showed a decrease from $36.872 billion on August 7, 2024, to $36.620 billion as of August 12, 2024.
Speaking about potential remedies for the deep, CBN Governor Olayemi Cardoso stated that, given the exchange rate’s significant influence on inflation, special attention must be given to events in the foreign exchange markets as well as the prognosis for the rate in the short to medium term.

He claims that the market’s growing faith in the Monetary Policy Committee’s (MPC) capacity to achieve the goal of keeping inflation within target is the reason for the currency rate’s recent relative stability.

In order to preserve the recent market stability, he stated, “this fragile equilibrium must, however, be carefully managed in order to not jeopardize the achievements so far in attracting more capital flows.”