Nigeria’s external reserves fell to $41.995 billion at the end of October, representing a decline by $5.793 billion or 12.12 per cent, compared with the $47.788 billion it was as at the end of June, 2018, data compiled from the Central Bank of Nigeria’s (CBN) website has shown.
The development was largely attributed to interest rate normalisation in some advanced economies.
According to analysts at CSL Stockbrokers Limited, the decline suffered from the country’s reserves, derived majorly from the proceeds of crude oil earning, was as a result of reversal of capital flows, which has increased the demand for dollars in the forex market, therefore, forcing the central bank to step up its intervention in a bid to stabilise the currency.
“The combination of rising yields in advanced economies, particularly in the U.S coupled with growing concerns about the global economy due to the trade spat between the US and China have led to a reversal of capital flows in emerging markets.
“Furthermore, we think the elevated tensions in the political economy will further compound the concerns of foreign investors, leading them to migrate to safe haven high-quality assets in advanced economies.
The Lagos based firm said in a report, “That said, considering the depreciation in the currencies of most emerging market counterparts such as South Africa, Turkey, and Argentina, we believe the CBN will continue to defend the naira and consequently depleting the reserves in order to avoid a depreciation of the naira in the near term.”
CBN Governor, Mr. Godwin Emefiele, recently pointed out that due to the ongoing interest rate normalisation in the United States, which has been predicted to extend to some other advanced economies in Europe, the central bank would focus on maintaining a stable exchange rate so that businesses can plan and to avoid a problem in the banking system assets. Emefiele also said there was no cause for alarm owing to the recent decline in the country’s external reserves.
“The choice for Nigeria is to maintain a stable exchange rate so that businesses can plan and we don’t create problem in the banking system assets,” he had explained.
According to him, practically, all emerging markets have suffered, not just by depreciation, but also loss of reserves since the interest rates normalisation commenced.
“India, for example, has depreciated almost 14 per cent, Ghana by almost 12 per cent, New Zealand by about 12 per cent, Indonesia by another 12 per cent, Australia by eight per cent, South Korea – eight per cent; Japan – six per cent; Thailand – six per cent; Philippines and Vietnam have also lost, but Nigeria has lost little or nothing.
“For Nigeria, in my view and at the same time, we have managed to sustain stability in our foreign exchange market. I think we have done a very good job, not only trying to maintain a stable exchange rate, but trying to avoid depreciating our currency so far in this early days of normalisation.
“We have lost reserve, yes, somewhat marginally in my view, and at the same time, we have managed to sustain stability in our foreign exchange market.”