Nigeria’s Foreign Reserves Fall to Lowest Level in 14 Months As CBN Continues Withdrawals to Defend Naira
- The Central bank of Nigeria shows that Nigeria's foreign reserve is presently at its lowest level in the last 14 months
- CBN has been pulling from the foreign reserve to meet the economy's foreign exchange demands and to safeguard the Naira's value.
- Checks show that the CBN was forced to withdraw from foreign reserves due to low oil revenue, Nigeria's major foreign exchange source.
The Central Bank of Nigeria has revealed that Nigeria's foreign reserves have dropped to $37.2 billion as at Friday, November 11, 2022.
This is the lowest level Nigeria's reserves have been in 2022 and also since 30th September 2021, when the reserves were at $36 billion.
Legit.ng analysis of CBN foreign reserves data shows that from September 1, 2022, to November 11, 2022, $1.8 billion have been pulled out from the foreign reserves.
Report explains foreign reserves decline
Recent research from FBNQuest, a Merchant Banking and Asset Management group, provided insight into the drop in foreign reserves.
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According to the report, Nigeria's reserves decline is largely due to CBN's various interventions in the foreign exchange market to defend Naira from further devaluation.
Part of the report reads:
“The sharp drop in the FX reserves is mostly due to the CBN’s increased interventions on the various FX windows, such as the investors and exporters, and the Secondary Market Intervention Sales windows, following the difficulties with FX supply.”
What are Foreign Exchange Reserves?
Foreign exchange reserves are assets denominated in other currencies (I.E dollars). These reserves are utilized to back up liabilities as well as to influence monetary policy.
Foreign currencies, deposits, bonds, treasury bills, and other foreign government assets are among them.
These assets are retained for a variety of reasons, the most important of which is to ensure that a government or its agency has backup cash if its national currency quickly devalues.
Foreign exchange reserves are also called international or external reserves.
CBN head criticises Emefiele's decision to ban BDC operators from selling forex
Meanwhile, Obadiah Mailafia, a former deputy governor of the Central Bank of Nigeria (CBN), has criticised the decision of the apex bank to stop providing foreign exchange to bureau de change operators.
Mailafia said the decision could weaken the value of the naira against the dollar and other foreign currencies, as there might be a scarcity of forex.
With his experience of the banking system in Nigeria, Mailafia said the banks might hoard forex for themselves and sell at a high cost to buyers whenever the lenders want.