The external reserves fell in January 2023 by N463.62, pushing it down to $37.01 billion at the end of January 30, 2023, below the $37.08 billion the reserves housed at the end of December 30, 2022.
Recall that in the 12 months period of last year, the foreign reserves fell $3.43 billion, having closed on December 31, 2021 with $40.52 billion.
Nigeria’s low external reserves have been due to several factors including a reduction in equity trading by foreign investors, Nigeria’s inability to meet OPEC quota, and Nigerian National Petroleum Company (NNPC) Limited’s low earnings from crude oil, amongst others.
Also, in order to defend the Naira against the Dollar in the exchange rate market, the CBN has had to constantly dip into the foreign reserves to supply forex to the Investors and Exporters (I&E) window.
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Addressing the situation in its January report, titled; ‘MPC to favour smaller rate hikes in the short term’, Cordros Securities said “Foreign investors remain on the sidelines given the lack of FX reforms, higher global interest rates and weak macroeconomic narrative.
“In addition, CBN’s FX supply to the different FX market segments remains significantly below pre-pandemic levels. Meanwhile, the demand for the greenback remains high as market players continue to source for FX to fulfil and clear their outstanding obligations.”
Cordros further stated, “Consequently, since the last policy meeting, the local currency depreciated by 3.4 per cent to N461.25/$ at the official market as of 18 January 2023.
“However, given that the FX reserves remain within the CBN’s comfort level, we expect the Committee to highlight the need for the apex bank to maintain its periodic FX interventions and intensify its call to the fiscal authorities to amplify their efforts in ensuring higher crude oil production over the short-to-medium term.
“Accordingly, the Committee will likely reiterate that the CBN should address the pressures on the local currency by boosting the FX supply for productive activities.”