Though many of the citizens are concerned about the gradual depletion in the value of the country’s external reserves, the managers of the economy say there is no cause for alarm, ADEMOLA ALAWIYE writes
Indications have emerged that the nation’s external reserves may go below the $40bn mark before the end of the year in a bid to save the naira from further depreciation.
Latest data obtained from the Central Bank of Nigeria’s website showed that the external reserves dropped by $1.33bn from the $47bn recorded on August 20, 2013, to $45.67bn on September 26, 2013.
The external reserves, which have been hovering between $46bn and $48bn since February, dropped to an eight-month low of $45.9bn on September 20. The last time this figure was recorded was January 31, this year.
Indications had emerged a few weeks ago that the external reserves might fall further to $45bn.
The CBN data showed that shortly after falling to $46.97bn on August 21, the foreign reserves has been on a gradual fall, closing at $46bn on September 19.
Within the space of three months, from May 2 to August 5, 2013, the foreign reserves had dropped by $1.8bn from the peak of $48.85bn to $46.98bn.
The reserves have been recording a sharp drop as the central bank has been selling $300m at every sale the Wholesale Dutch Auction System in the last two months. Besides, the regulator recently resumed direct intervention by selling dollars to end users in the market.
Our correspondent gathered that the regulator took the decision in order not to devalue the naira. There had been speculation that the CBN would devalue the naira, thereby fuelling excessive demand for the dollar.
The naira had penultimate week lost 1.63 per cent to trade at N163.11 to the dollar at the inter-bank market, representing its lowest value in 15 months.
A reliable source at the CBN had told our correspondent, “The CBN has resumed intervention by selling dollars to end-users. The bank has a dealing whereby it sells to the WDAS, but very rarely sells to end-users directly.
“If the market is tight, it can sell or buy from end-users, but it is uncommon. The implication is to increase supply and make the naira appreciate.”
The CBN Governor, Mr. Lamido Sanusi, had said last Tuesday that he would do everything possible to defend the naira and ensure its stability, including using the nation’s foreign reserves to achieve the purpose.
Sanusi had said after the Monetary Policy Committee meeting in Abuja, “As far as the naira is concerned, we have always said we are committed to its stability. I have not heard any economic argument that there is any economic value in devaluing our currency.
“My view and that of the CBN is that if we need to tighten money, use some of our reserves to support the economy, we will. No central bank governor will say he will support the currency at all cost.
“But we want to be very clear that there is no country that allows its currency to just be determined by the market. We are not looking for a stronger currency neither are we looking at a weaker one. People want to pay fees and investors want to know if they will have returns on investments.
“We will use the reserves, we will use interest rates, we have gone through difficult months; hopefully, the next few months will not be difficult. We will not allow the naira to be weakened and we are committed to that.”
Some analysts, however, believe the CBN is not managing the naira effectively.
The Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said in an interview with our correspondent, “The CBN will only have to accept the reality. Nobody has won a currency war anywhere in the world. The reality is that the currency will depreciate marginally.
“But all the emerging markets’ currencies have depreciated by 11 per cent, even though the naira has depreciated by one or two per cent. The naira will still be a stronger currency against its peers; so, I don’t see any reason why we should still hold on to the currency. It is time to let the currency move gradually to its fair value.”
The Head, Research for Africa, Standard Chartered Bank, Ms. Razia Khan, said, “The CBN has unveiled new forex measures aimed at curbing suspected money laundering. The currency is likely to receive a boost from that.
“The CBN has also reaffirmed its commitment to forex stability, which it suggested that rising non-import-related demand for forex may have been attributable to political developments in Nigeria and increasing dollarisation.”
However, the bank recently dismissed claims that the reserves were experiencing a sharp decline, noting that the current value of $46bn showed that the fundamentals of the economy remained strong.
Sanusi said in spite of the uncertainties in the global arena, which had made major economies to cut interest rates in order to provide market liquidity, Nigeria’s external reserves would be invested in a currency mix that would optimise returns for the country.
He also allayed fears about the uncertainties of the economy, stating that the reserves could finance about 11 months of importation.
Sanusi had said, “The fundamentals of the Nigerian economy are still very strong, and occasionally, there might be increase or decrease, but it has been hovering between $45bn and $47bn, and that is very strong.
“In Africa, it is either the second highest or third highest. I think it is the second highest only after Algeria, and that’s really very remarkable.”
The CBN governor said the move to invest the reserves in other currencies other than the dollar was necessary in view of recent events in the global economy that had driven yields to historical low levels.
He said since the financial crisis of 2008, reserves managers had come under increased pressure to find ways of enhancing income.
This development, he noted, had made the CBN to diversify its reserve portfolios by investing in the Chinese Renminbi.
Punch
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