Unease as external reserves fall to $37.66bn, edge toward resistance level

The latest figure on the Central Bank of Nigeria website now shows that gross external reserves balance has dropped further to $37.66 billion.

Analysis of the movement in the nation’s external reserves indicates that about $1 billion has been used up in 2020.

On 31st December, 2019 total external reserves was $38.595 billion.

In separate reactions, analysts think there is need to worry as the Central Bank of Nigeria would be in the market this week for foreign exchange intervention.

The external account has not reach stop point, analysts said. MarketForces gathered that while outflow of the foreign currency is sure, where the next inflow would come from remains uncertain.

Weak inflow, high usage of dollar balance in the nation’s external reserve have contributed to decline in the external buffer for defending the Nigeria’s local currency, naira.

Analysts are expressing fear about the future of naira due to speedy reduction of the gross external reserves.

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 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 reserve has declined to $38.01billion 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 Q4 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.

Unease as external reserves fall to $37.66bn, edge toward resistance level by Sam Atanbiyi