External reserves drop by $170.91m in 8 days

The nation’s external reserves fell by $170.91million in eight days to $39.27billion as of July 26, 2022, from $39.44billion on July 18, data obtained from the Central Bank of Nigeria (CBN) shows. New Telegraph’s analysis of the apex bank’s figures indicates that the reserves had maintained an upward trend from June 6 when they stood at $38.42 billion to $39.44billion on July 18. Analysts had attribute the reserves accretion of during the period to the price of oil (the commodity that accounts for over 70 per cent of Nigeria’s forex earnings) remaining above $100 per barrel in the last two months as well as the CBN reducing forex allocation to the official market.

However, analysts believe the steady decline in the CBN’s dollar buffers in the last few days is as a result of the regulator stepping up its intervention in the foreign exchange market in a bid to tackle the scarcity of dollars which has led to a weakening of the naira in both the official and unofficial (parallel market) forex markets.

The worsening forex scarcity in the official market had compelled some banks to start informing their customers, interested in purchasing foreign currency to meet needs such as, international school fees, upkeep and rent payments, as well as Basic Travel Allowance (BTA) and Personal Travel Allowance (PTA), to submit their applications in advance. In a recent report, analysts at CSL Stockbrokers predicted that as the foreign exchange scarcity worsens and with the CBN unlikely to step up its intervention at the Investors and Exporters’ ( I&E) window in the near term, the country’s external reserves could drop to $35billion by the end of this year.

They noted that a $35billion external reserves level would cover the import of goods and services import of between five and six months, adding that “with that reserve level, we expect the CBN to maintain its current monthly intervention in the FX market.” According to the analysts, “the recent shortage in dollar supply amidst increased demand has worsened the pressure on the naira. Though the exchange rate at the I&E window has remained stable due to the sustained intervention in the FX market by the CBN, there has been considerable depreciation at the parallel market.