External reserves fell $576 million in January, edge toward resistance level
Weak inflow, high usage of dollar inflow into the nation’s external reserve has reduced the external buffer for defending the Nigeria’s local currency, naira.
Already, analysts are expressing fear about the future of naira due to speedy reduction of the gross external reserves.
At the beginning of the year, gross external reserve balance was $38.585 billion, which mean the amount has dropped by $576 million in 30 days.
Investment analysts at WSTC Securities limited revealed in a note that the external reserves are edging closer to the CBN’s resistance level of $35 billion.
“We believe that the Central Bank of Nigeria (www.cbn.gov.ng) will direct policies towards the accretion of the external reserves, to keep exchange rate stable”, analysts at the firm predicted.
From its peak point when it was about hitting $46 billion in 2019, external reserve has been on decline.
Gross external reserve stands at $38.01 billion as at the end of January. However, some part of the external account is blocked leaving $37.243 billion liquid assets for use.
Meanwhile, some currency traders predict a further decline this month as the Central Bank of Nigeria intervenes in the foreign exchange market to keep naira strong.
The CBN recently reiterate it stand using multi-tiered foreign exchange strategy to managing naira exposure.
Apex said it would support the local currency as it rules out possible devaluation as predicted by some analysts.
Some currency traders expressed that naira is overvalued, thus predicted that the currency may be devalued as decline external reserve is expected to reduce ability of the apex bank to support the currency for long.
In its analysts note, WSTC Securities observed that the FX market was stable during the period, as continued CBN intervention held sway for the exchange rate.
The exchange rate in the Investors & Exporters window stood at an average of N363/$.
Data shows that external reserves declined to $38.01 billion as at the end of January 2020 from $38.59 billion as at the beginning of January 2020.
Meanwhile, analysts at Coronation held that foreign investment portfolio for the month of January was reported at $1.71 billion, 30% year on year increase.
FPI flows averaged N0.54 billion per month in the fourth quarter 2019. This increase is positive in that there is renew appetite for the CBN’s OMO Bills by foreign investors.
“Although the CBN published foreign reserves shed 1.24% in January, there may be no cause to worry just yet if FPI flows are sustained at current level”, Coronation said.
External reserves fell $576 million in January, edge toward resistance level by Julius Alagbe