The macro fundamentals surrounding Nigeria’s major export, including the recent jump in crude oil prices to about $40 seem to have helped Nigeria’s foreign reserve to rise at a steady pace.
According to the latest data obtained from the Central Bank of Nigeria (CBN), Nigeria’s foreign exchange reserves now stand at $36.57 billion, having increased sharply from $33.42 billion as of April 29, 2020. This shows a gain of $3.15 billion dollars in 33 days.
Foreign exchange reserves are financial assets held in reserve by CBN in foreign-dominated assets. These foreign financial dominated reserves are used to meet payment or debt obligations. They also influence monetary policies and include foreign-dominated currencies, foreign-dominated bonds, and other International backed securities.
This feat recorded above (rising FX reserves) has given the CBN Governor, Godwin Emefiele, more ammunition to defend the naira.
Also, the macro fundamental of Nigeria’s currency presently shows that Mr. Emefiele has kept his word on hitting currency speculators hard.
The naira has been stable in the short term, even though data obtained from Everdon Bureau de Change showed that the currency had failed to break the resistance price level of N450 to $1 in the last 6 days in Nigeria’s parallel market.
Weeks ago, the naira traded as high as N475 to $1. However, on Thursday morning it was sold at N446 to $, proving that Nigeria’s monetary captain is bent on stabilizing the currency for the long haul. Recall that the CBN Governor had warned currency speculators and hoarders to stop manipulating Nigeria’s exchange rates. He also recommended that Nigerians should stop patronizing black market currency operators. According to him, the rates they are buying the dollar from the black market are unrealistic.
In addition, Nigeria’s central bank recently re-started the weekly dollar sales of $100 million for small businesses and individuals who are in genuine need of foreign exchange.
Philip Anegbe, Team Lead at CardinalStone Research, had recently told Nairametrics that the pressure on the naira would ease off soon. He said:
“I believe some of the recent pressures on FX is driven by speculators’ panic responses to weakness in dollar earnings, the decline in FX inflow through the I and E window, and suspension of dollar sales to BDCs (Bureau De Change operators).
“The imminent resumption of BDC activities is therefore likely to slightly ease Naira pressures in the parallel markets, but we believe the underlying medium-term fundamental concerns facing the Naira still remain.”
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