Nigeria’s Foreign Reserves Grow Amidst Struggles
Amidst the economic struggle, Nigeria’s foreign reserves climbed moderately, signalling hope for strong support for the local currency which has lost a large chunk post quiet devaluation in January.
According to data from the Central Bank of Nigeria (CBN) gross external reserves rose by about $152 million as the country continued to scout for FX inflows across sources to boost net balance.
Providing import cover for seven months, foreign reserve was seen at US$33.45 billion on Friday, though further inflows from various sources are expected to lift the amount in the first half of the year.
Nigeria’s gross external reserve has been hovering around the current level despite oil prices remaining supportive over the last 1-2 years and relatively modest oil production levels (1-6-1.7mbpd).
Accretion into FX reserve has been limited by crude oil to refined petrol swap arrangements deployed by the Buhari government to finance the large petrol price subsidies, analysts said in a chat.
Last week, the activity level in the Nigeria autonomous FX window decreased 33.4% to $822.2 million, Afrinvest said in its weekly note. In the currency market, the domestic currency depreciated against the $ at both the official and parallel windows.
At the official window, the Naira shed 7.7% against the US dollar to close at ₦1,665.50, while at the parallel market, the Naira closed at ₦1,830.00, signalling an 11.2% decline in the value of the domestic currency.
Midweek, the CBN reinstated the two-way FX quote system with trading hours between 10 am – 2 am. In addition, the apex bank set a standard transaction size of $100,000.00 and a bid/offer a spread of N50.00. Trades were consummated within the N1,050 – N1,851 range.
Notwithstanding the recent policy actions by the CBN, the currency has remained under pressure given that the market supply remains frail, Cordros Capital Limited said in a note.
Analysts said they are encouraged by the pace of reforms within the market as well as the renewed interventions by the apex bank.
Following through with recently implemented reforms alongside continued efforts to clear the FX backlog may lead to improved liquidity over the medium term, Cordros Capital stated.
Afrinvest analysts said they anticipate continued pressure on the Naira across various trading sectors in the absence of substantial inflows to bolster FX liquidity.
With an increase in crude oil production volume, there is an expectation that there will be more inflows into the external reserves in 2024. Oil production including condensates has inched to 1.64 million barrels per day, official data indicates.
Elsewhere, the price of benchmark Brent Crude declined 1.4% to settle at $82.31 per barrel after two consecutive weeks of gains.
The global oil market had reacted negatively following the recent announcement by the US Fed, indicating that the anticipated interest rate cuts may be delayed for at least two months. However, oil demand has remained healthy, despite the high interest rates, analysts said in a note. #Nigeria’s Foreign Reserves Grow Amidst Struggles
