Nigeria’s foreign external reserves dipped to a 10-year low of $26.387 billion as at May 31, 2016, the lowest level since October 2005 when it stood at $23.92 billion even as the price of brent crude hovered around $50 per barrel at the international market.
The reserves have continually been on the decline as the Central Bank of Nigeria (CBN) continued to dip into it to defend the currency which has remained stable around N197 to the dollar at the official end but reached a high of N400 at the parallel market.
The wide margin between the official rate and the parallel market rate has been the source of debate as calls increased for the apex bank to relax its policy on foreign exchange, prompting the CBN at the end of the Monetary Policy Committee(MPC) meeting held last month to adopt a flexible exchange rate the modalities of which are yet to be made public.
Year- to- date, the external reserves has declined by $2.68 billion or 9.23 per cent from $29.069 billion as at December 31, 2015, and $702.34 million or 2.6 per cent compared to $27.089 billion which it was at the end of April, 2016 to $26.387 billion. The CBN reserves as at the end of May provides a merchandise import cover of 6.1 months and 4.4 months when services are included.
The CBN estimated in January that its monthly supply of foreign exchange for sale had slumped to $1 billion, although the spot price of Bonny Light has since recovered by 75 per cent to around $50 per barrel while output has fallen by at least 500,000 barrel per day.
Ahead of the release of the modalities of the flexible exchange rate, analysts said they were anticipating a dual exchange rate system as the CBN said it would keep a small foreign exchange window for critical transactions.
According to analysts at FBN Quest, “If the CBN rate is to be limited to critical transaction, then logically pressure on reserves from flows should ease. The success of the second window in unlocking additional forex supplies hinges upon the modalities to be announced. We would expect the CBN to err on the side of conservatism.”
Source : Leadership