Nigeria’s external reserves suffered a major drop during the week as CBN data reveals the country’s external reserve position was $46.8 billion as at August 6th, 2018. Nigeria’s external reserves rose to a year high $47.8 billion on the 25th of June 2018 and have failed to hit the $48 billion mark since then.

External reserves hovered just above $47 billion in the whole of July but reduced nearly every week for the month. In fact, since May, Nigeria’s external position has fallen closer to the $47 billion mark.

What it matters?

  • The exchange rate is the single most important metric for measuring how well the economy is fairing.
  • The CBN understands this clearly and has long deployed a strategy of defending the currency whenever the opportunity arises.
  • The CBN has in the last few weeks sold dollars in the interbank market as liquidity squeeze threatened rates at the Investor and Exporter window.
  • The Nigerian Stock market has also recorded a string of losses in the last quarter with low foreign investor participation seen as one of the reasons why.
  • Nigeria’s vile political climate is also a possible risk that could be a deterrent to future foreign investor inflow in the market.
  • There is also the small factor of the summer holidays, which is when a lot of Nigerians travel abroad with their families for holiday.

What next? Any reasons to be worried?

  • Caution is always recommended when it comes to forex related issues in Nigeria.
  • We always advocate that you hold a mixture of dollar-denominated and Naira denominated assets.
  • Follow the performance of the stock market as a bellwether for investor sentiments about the market.
  • Currently, there are no immediate concerns that the naira will depreciate.
  • The one elephant in the room continues to be the Militants. So long as they remain quiet, we can rest assured that the economy will stay resilient.
  • And by the way, corporate profits still look better than last year.

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