Nigeria’s external reserves dropped to about $30.04 billion as at Friday October 16th 2015 according to data available on the website of the CBN. This is the lowest it has reported since July 14th 2015. The CBN has jealously guarded the exchange reserves of Africa’s largest economy by dishing out several policies that are mostly viewed as capital controls.
Some of its policies have fallen under severe criticisms even leading to JP Morgan yanking Nigeria out of its bond index. However, the CBN Governor Godwin Emefiele and the APC led government have staunchly defended its policies and have vowed not to devalue of the naira.
But wiith the exchange rate dropping to $30billion the CBN will be worried and might do whatever it takes to ensure it doesn’t fall below that mark. External reserves was about $31.3billion on September 1 2015 suggesting that it had spent a net amount of $1.3billion within that period through forex sales. Demand for dollars is still high in Nigeria, despite stringent policies restricting the outflow of dollars out of the economy.
The reduction in exchange reserves may be due to demand from Nigerians sending their wards abroad, outflow of dividends by foreign investors and multinationals and payment of imports required for the last quarter of the year.
It will be interesting to see how the CBN responds to this drop as we wonder if it will consider tightening up even further. The CBN has loosened up a bit on some of its policies but it has demonstrated an ability to tighten the screw if under pressure. Already some banks have begun restricting daily dollar spend abroad possibly due to smaller supply locally.