Monday May 18,2020
CBN naira defence depletes foreign reserves by $3.17bn
Forex scarcity due to falling crude oil price forced the Central Bank of Nigeria to access the country’s foreign reserves to make forex available in the economy; NIKE POPOOLA reports that this gulped $3.17bn in the first quarter.
The country’s foreign reserves which stood at $38.07bn at the end of 2019 fell to $34.9bn at the end of the first quarter of 2020.
To make forex available to operators in the economy, the Central Bank of Nigeria sold forex from the country’s foreign reserves to achieve stability of the exchange rate and provide liquidity despite the low revenue from oil sales
During the last Monetary Policy Meeting, the Central Bank Governor, Godwin Emefiele, said, “External reserves position stood at $34.9bn in March 2020 as against $38.07bn in December 2019.
“The depletion in external reserves was driven by FX sales to Bureau De Changes and Import & Export window as well as dwindling oil receipt.
“The current level of reserves is estimated to finance about 6.30 months of imports.”
Consequently, he said, the value of the naira at the I&E window was readjusted by 4.53 per cent to N380/$1 on March 20, 2020 from N363.53/$1 as of the end- December 2019, and at the BDC window by 5.48 per cent to N380/$1 from N360.25/$1 at the end of December .
The CBN had technically devalued the naira after all interventions in the market such as imposing sanctions on errant operators and use of moral suasion to curb illegal forex operations did not sustain the exchange rate.
For about three years, the CBN had stabilised the exchange rate of the naira to the dollar, as the naira sold for N360/$1 in the parallel market until the oil price started to fall in the international market, leading to speculations and hoarding of forex.
As forex scarcity persisted, the CBN suspended the sale of forex at the end of March but resumed partial sales at the end of April.