External reserves suffer another depletion as CBN struggles to defend Naira

Nigerian external reserves dropped to $40.1 billion following the withdrawal of $400 million from the reserves by the Central Bank of Nigeria (CBN) in the month of January.

According to data obtained from the Central Bank of Nigeria’s website on Thursday, shows that the country’s foreign reserves dropped from $40.52 billion it stood on December 31, 2021, to $40.11 billion at the end of January.

The fall recorded in January was associated with the forex interventions of the CBN through the Investors and Exporters segment of the foreign exchange window as it battled to save Naira from further depreciation.

READ ALSO: Naira drops second day in a row at official market

To save pressure on the reserves, the CBN last year discontinued its $20,000 weekly Forex sales to 5,500 Bureau De Change operators, costing it an average of $5.72bn yearly.

This move increased the volume of dollars traded (turnover) at the official specialized market.

In January participants at the I&E window dollar exchange rose sharply by 152 per cent, Year-on-Year (YoY), to $2.16 billion in January 2022 from $906.44 million in January 2021.

And the pressure the official market came under was clearly witnessed every week.

In the first week of January a total of $337.65 million was traded, increasing by 91 percent to $645.44 million in the second week before dropping by 9.2 per cent to $585.86 million in the third week.

The downward trend continued in the fourth week as turnover fell by 15 per cent to $495 million. Turnover stood at $95.07 million on the last day of the fifth week.

READ ALSO: Nigeria’s external reserves suffer more depletion as CBN struggles to defend Naira

The increased pressure at the official market, dwindling forex reserves and lack of enough oil revenue could mean a big challenge ahead for Nigeria, a feeling which was clearly captured in CardinalStone Research outlook for 2022.

The report states that based on the latest data as of second quarter of 2021 (Q2’21), the Central Bank of Nigeria (CBN) estimated the fair value of Naira at N462 per dollar, which implies a 12.3 per cent overvaluation versus the I&E rate.

“To curb inflationary pressures and avoid a worsened currency position, we think that the CBN is unlikely to adjust the Naira to N462 per dollar. Hence, we project a Naira devaluation of N440 per dollar in 2022,” it added.

Similarly, WSTC Securities Limited in their 2022 outlook is expecting the exchange rate to trade between the band of N415 – N430 in the I&E Foreign exchange window in 2022.