Nigeria’s external reserves have hit $45 billion and could be set to climb further amidst the spark predictions of crude oil rising to $90 per barrel, the middle east trade tensions and the new International Maritime Organisation (IMO) rules. According to data gotten from the Central Bank of Nigeria (CBN), the reserves gradually rose from $44.792 billion at the start of May to $45.004 billion on 16th May. This means that the reserves increased by $212 million in the two-week period.
Entrepreneurs.ng’s Analysis Of The Data.
The figure is an eight-month high from 18th of September last year, when the country’s foreign exchange buffers stood at a figure of $45.002 billion. Significantly, after climbing to a 4-year high of $47 billion in April 2018, the external reserves began to fall in the following month.
The decline in the figure continued from July of 2018 until the reserves stabilized. The reserves rose from $42.296 billion (its value as at February 28, 2019) to $44.428 billion on March 29, 2019. This indicates a rise of about $2.132 billion which, as at the end of April, further crept up to $44.792 billion.
Reasons For The Rise In The External Reserves.
Analysts point the accumulation in the reserves within the last few months to
- The increase in crude oil price, as well as
- Huge dollar injections by foreign portfolio (FP) investors who, subsequent to the conclusion of the general elections, have sought after taking advantage of the double-digit interest rates on Nigeria’s fixed income instruments (treasury bills and FGN bonds).
The CBN Governor, Mr. Godwin Emefiele, had, however, in March, revealed that an inflow of over $6 billion was documented in the naira bond market post-election.
Rising Tensions and The Huge Currency Injection Into the Forex Market.
Nevertheless, with oil exports still accounting for over 90% of Nigeria’s foreign exchange earnings, the current increase in commodity prices due to rising tensions in the Middle East implies that the country’s external reserves could experience more growth in the short term, giving the Central Bank more ammunition to defend the naira with.
Moreover, in a note circulated at the weekend, Bank of America Merrill Lynch (BofAML) cautioned that Brent crude oil could reach $90 per barrel due to new IMO rules concerning shipping fuels and a weaker dollar courtesy of a stepping down in the US-China trade war.
According to analysts, the $39.9 billion pumped into the foreign exchange market by the apex bank in 2018, and the relatively stable exchange rate are traceable to the periodic intervention by the CBN. Hence, the growing external reserves have been a cushion to even out the naira.
Foreign Exchange Reserves And Its importance.
Foreign exchange reserves are assets held on standby by a monetary authority in foreign currencies. They are used to support liabilities and also stimulate monetary policy.
They include deposits, bonds, foreign banknotes, treasury bills and other foreign government securities.
Some Of Its Importance Are That:
It provides a level of confidence to markets that a nation can meet its external responsibilities;
It aids the defense of the national currency by external assets;
It helps maintain a reserve for national disasters or emergencies.