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Currencies

Why Nigeria’s external reserves is stuck at $35 billion

Forex reserves remain just above $35 despite the pressure on the exchange rate

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external reserves, After loosing $520 million in two weeks, Nigeria's external reserves rise again, Foreign reserves, Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

Nigeria’s external reserves remain stuck at just above $35.7 billion, according to data from the central bank for the week ended September 10th, 2020.

Nigeria is in the midst of a foreign currency crisis that has led to multiple devaluations in March, July, and in August 2020. Pressure from the World Bank has also led to a unification of the exchange rate, which is now between N380 and N386/$1.

However, despite the pressure on the exchange rate and the decision by the CBN to resume sales of forex to the BDCs, forex reserves remain just above $35.

Forex reserves at the beginning of the year was $38.5 billion and fell to under $36 billion in the days leading to the lockdown. Since then, external reserves have fallen to $33.4 billion before rising to above $36 billion when the IMF disbursed loans to Nigeria. It has remained stuck at above $35 billion since July,

Nigeria has awaited a $1.5 billion loan from the World Bank, which is viewed as critical to releasing forex to meet the demand of foreign investors waiting on the sidelines to repatriate their funds. Pent up demand is thought to be around $2 billion, depending on who you read.

(READ MORE: External reserves decline by over 8%, despite lower FX demand)

Why reserves remain static: The CBN relies heavily on oil sales to shore up its external reserve position.

  • But with oil prices hovering just above $40 and Nigeria’s crude oil output down to 1.4 million barrels per day, dollar inflows have remained short of expectations.
  • The government reported a 50% drop in revenues in the first half of the year.
  • Foreign portfolio investments in the country have also crashed. According to data from the NBS, Foreign Inflows fell to $1.29 billion compared to $5.8 billion.
  • Foreign investments into the money market also fell drastically from $3.4 billion in Q1 2020 to just $323 million.
  • The CBN attracted significant inflows of forex between 2017 and 2019, offering high-interest rates as an incentive to foreign investors to keep their money in the country.

Why this matters: Nigeria’s external reserve is a closely watched benchmark for a lot of reasons.

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  • It helps determine how much forex Nigeria has to meet its import requirements.
  • A sharp drop below $35 billion could send s signal to the forex market that another devaluation is imminent to help prop up the naira.
  • In contrast, an increasing external reserve suggests a higher inflow from crude oil sales, foreign investor inflows and other external loans such as the world bank loan.
  • Nigeria’s current account deficit is also negative, meaning that the CBN will likely keep the reserves at these levels until government external revenue sources improve.

Impact on forex: It appears the CBN is not immediately disposed to selling forex to meet demand at the NAFEX window until it receives a significant inflow of forex. This confirms how important the World Bank’s loan is to provide a temporary fix to Nigeria’s exchange rate challenges.

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Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

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Currencies

Naira remains stable across forex market as dollar supply improves significantly by 430%

Naira remained stable against the US Dollar at the NAFEX window on Thursday to close at N410.50/$1.

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Naira value

Thursday,15th April 2021: The exchange rate between Naira and the US Dollar closed at N410.50/1$ in the Importers and Exporters window, where forex is traded officially.

Naira remained stable against the US Dollar at the NAFEX window on Thursday to close at N410.50/$1 as there was no movement when compared to the rate that was recorded on Wednesday, as dollar supply improves significantly by about 430%.

Also, the naira remained stable against the dollar for the third day at the parallel market on Thursday, 15th April 2021 to close at N482 to a dollar, the same rate that was recorded on Wednesday, April 14, 2021.

READ: Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

Trading at the official NAFEX window

Naira remained stable against the US Dollar at the Investors and Exporters window on Thursday to close at N410.50 to a dollar. This was the same rate that was recorded on Wednesday, 14th April 2021.

  • The opening indicative rate closed at N410.50 to a dollar on Thursday. This represents an 86 kobo drop when compared to N409.64/$1 recorded on Wednesday.
  • Also, an exchange rate of N437.62 to a dollar was the highest rate recorded during intra-day trading before it closed at N410.50/$1. It also sold for as low as N392/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window rose significantly by 429.93% on Thursday, 15th April 2021.
  • A cursory look at the data tracked by Nairametrics from FMDQ showed that forex turnover increased from $21.92 million recorded on Wednesday, April 14, 2021, to $116.16 million on Thursday, April 15, 2021.

READ: Naira gains at NAFEX as oil prices record biggest single day loss in 11 months

Cryptocurrency watch

The world’s most popular digital currency, Bitcoin, went up by over 1% to close at $63,441 on Thursday evening as most investors still think it is a bubble.

  • Bitcoin had crossed the $64,000 mark on Wednesday after it traded past the $63,000 mark the previous day for the first time.
  • The Co-Founder and Managing Director of Nexo, Antoni Trenchev, had said that Bitcoin could hit $100,000 in the next 12 to 18 months.

Oil price gain

Brent crude oil price went up slightly on Thursday to close at $66.83 per barrel, indicating a 0.3% increase compared to $66.63 recorded at the close of trade on Wednesday as it trades at a one-month high.

  • Oil extended its climb out of a month-long trading range with further signs of an accelerating rebound taking shape in the U.S.
  • Oil remains firmly above its most recent trading range, where it had been stuck near $60 a barrel since mid-March as some regions faced a resurgence in virus cases. Continued signs of a stronger U.S. market are also pushing prices higher.
  • Brent Crude closed at $66.83 (+0.38%), WTI Crude closed at $63.46 indicating 0.49% gain, Bonny Light, $64.79 (+3.56%), OPEC Basket (+2.46%) to close at $63.39 while Natural gas rose by 1.53% to close at $2,658

READ: Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

External reserve

Nigeria’s external reserve gained about $27 million on Wednesday, 14th April 2021 to close at $35.199 billion, being the highest external reserve position recorded in over a month.

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  • This indicates a 0.08% increase when compared to $35.172 billion recorded on Tuesday, 13th April 2021.
  • It also represents an increase in the country’s external reserve position for the 17th consecutive day, having endured a significant downturn earlier in the year. Nigeria’s reserve has added a total of about $783 million in 17 days.
  • This recent increase in Nigeria’s external reserve could however be attributed to the increase in crude oil prices recorded earlier in March before the recent bearish trade in the crude market.
  • It could be attributed to the possible increase in diaspora remittance as the CBN offers incentives for every unit of a dollar received in Nigeria from diaspora remittance.
  • The external reserve is likely to get a further boost, as the Federal Government recently announced plans to issue $500 million Eurobonds for 2021.

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Currencies

Naira appreciates at NAFEX as CBN sells forex to foreign investors, first in 2021

Naira appreciated against the US Dollar at the NAFEX window on Wednesday to close at N410.50/$1.

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Wednesday,14th April 2021: The exchange rate between Naira and the US Dollar closed at N410.50/1$ in the Importers and Exporters window, where forex is traded officially.

Naira appreciated against the US Dollar at the NAFEX window on Wednesday to close at N410.50/$1. This represents a 0.12% gain when compared to N411/$1 recorded on Tuesday, as the Central Bank of Nigeria in its first sale, in 2021, to foreign investors seeking to repatriate their funds abroad, sold $20 million to them according to Reuters.

Meanwhile, the naira remained stable against the dollar for the second day at the parallel market on Wednesday, 14th April 2021 to close at N482 to a dollar, the same rate that was recorded on Tuesday, April 13, 2021.

READ: Naira falls at NAFEX window as Bitcoin rises above $63,000, an all-time record high

Trading at the official NAFEX window

Naira appreciated against the US Dollar at the Investors and Exporters window on Wednesday to close at N410.50 to a dollar. This represents a 50 kobo gain when compared to N411/$1 recorded on Tuesday, 13th April 2021.

  • The opening indicative rate closed at N409.64 to a dollar on Wednesday. This represents a 6 kobo drop when compared to N409.58/$1 recorded on Tuesday.
  • Also, an exchange rate of N422 to a dollar was the highest rate recorded during intra-day trading before it closed at N409.64/$1. It also sold for as low as N392/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window dropped significantly by 59.05% on Wednesday, 14th April 2021.
  • A cursory look at the data tracked by Nairametrics from FMDQ showed that forex turnover declined from $53.53 million recorded on Tuesday, April 13, 2021, to $21.92 million on Wednesday, April 14, 2021.

READ: Naira gains at NAFEX window despite 26.2% drop in dollar supply

Cryptocurrency watch

The world’s most popular digital currency, bitcoin, reached another all-time high on Wednesday, touching $64,717.01 before coming down to $62,298.51 as of Wednesday evening ahead of Coinbase’s historic stock market listing in New York.

  • Bitcoin, which has been up and down over the last few weeks, crossed $64,000 on Wednesday after it had just yesterday, crossed the $63,000 mark for the first time.
  • The rally has come in anticipation of cryptocurrency exchange Coinbase’s hotly tipped US stock market listing.
  • Earlier on Wednesday, the price of Dogecoin, recorded a new milestone as it went up by 54%, establishing a new all-time high of $0.1161.
  • Meanwhile, Coinbase, a Cryptocurrency exchange, finally made its highly anticipated debut on Nasdaq on Wednesday, April 14, 2021, becoming the first company devoted entirely to cryptocurrency to enter the US stock exchange with a $100 billion valuation.

READ: Naira remains flat as external reserve fall to just 6 months of imports

Oil price gain

Brent crude oil price jumped on Wednesday to close at $66.63 per barrel, indicating a 3.98% increase compared to $64.08 recorded at the close of trade on Tuesday as the Energy Information Administration (EIA) reports crude draw.

  • The EIA in its report said that crude oil inventories had shed 5.9 million barrels in the week to April 9, compared with an inventory draw of 3.5 million barrels reported for the previous week.
  • The EIA’s inventory estimate comes a day after the American Petroleum Institute reported a 3.6-million-barrel inventory draw in crude oil for the same period but a 5.565-million-barrel build in gasoline stocks, which prevented oil prices from swinging significantly up or down.
  • The oil rally can also be attributable to the picking up of US oil demand as economic expansion quickens. The West Texas Intermediate (WTI) crude futures surged more than 5% on Wednesday and broke out the narrow trading range they had been stuck in since mid-March.
  • Morgan Stanley, meanwhile, said in a new note that it expected prices to remain range-bound through the end of the summer, at between $65 and $70 per barrel for Brent.
  • Brent Crude closed at $66.63 (+4.65%), WTI Crude closed at $63.18 indicating 4.99% gain, Bonny Light, $62.56 (+0.58%), OPEC Basket (+0.67%) to close at $61.87 while Natural gas declined by 0.08% to close at $2,617

External reserve

Nigeria’s external reserve gained about $34 million on Tuesday, 13th April 2021 to close at $35.172 billion, being the highest external reserve position recorded in over a month.

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  • This indicates a 0.1% increase when compared to $35.138 billion recorded on Monday, 12th April 2021.
  • It also represents an increase in the country’s external reserve position for the 16th consecutive day, having endured a significant downturn earlier in the year. Nigeria’s reserve has added a total of about $756 million in 16 days.
  • This recent increase in Nigeria’s external reserve could however be attributed to the increase in crude oil prices recorded earlier in March before the recent bearish trade in the crude market.
  • It could be attributed to the possible increase in diaspora remittance as the CBN offers incentives for every unit of a dollar received in Nigeria from diaspora remittance.
  • The external reserve is likely to get a further boost, as the Federal Government recently announced plans to issue $500 million Eurobonds for 2021.

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