By Babajide Komolafe
•Anxiety mounts over Naira stability
The nation’s foreign reserves have continued on the downward trend falling by $929 million in the first two weeks of this month.
The Central bank of Nigeria (CBN) reported on its website last week that foreign reserves fell further to $47.115 billion from $48.044 billion as at June 28th. This represents the lowest level of foreign reserves since March.
Meanwhile, the naira depreciated by 77.7 kobo at the interbank foreign exchange market last week fuelling anxiety over the continued stability of the naira. From N160.59 per dollar the previous week, the interbank exchange rate rose to N161.59 at the close of business on Friday. This is despite supply of $600 million by the CBN through it’s the bi-weekly foreign exchange auction. In addition to this was $300 million sold the Nigeria National Petroleum Corporation (NNPC).
The decline in foreign reserves was fuelled by decline in crude oil price, and in domestic production. In addition is the huge demand for foreign exchange fuelled by huge sell-off in the fixed income market by foreign investors due to global uncertainty
emanating from the timing and reported withdrawal of the United States quantitative easing. To meet the increasing foreign exchange demand, and to sustain the value of the naira, the CBN on a number of occasions to increased foreign exchange sales per auction session to $500 million from $300 million. For example, the month of dollars sold by the CBN increased 31.2 per cent in June to $2.65 billion from $2.018 billion in May.
While this development have occasioned anxiety over the future of the naira especially the ability of the CBN to continue to defend the naira in the face of declining reserves, the general believe is that the apex bank should for now maintain its defence of the naira.
“Despite the temporal pressure on the Naira, it is expected that the NGN will remain relatively stable around N160.00/$1 (+or-200bps) in the medium term despite the downside risk of volatile oil prices and low crude oil output”, predicted the Financial Market Dealers Association (FMDA) in its outlook for foreign exchange market.
Managing Director/Chief Executive, Mr. Bismarck Rewane said, “There are three pressures here. There are those who have transactions to settle, there are those who are afraid that the dollar would not be available when they need it in the future, and there are speculators, who are speculating against the naira. In this circumstance, you will have to keep supporting the naira for some time to reduce the amount of speculative attack. But invariably, at the end of the day, there would be a need for a minor readjustment of the value of the naira to the dollar in the not too distant future because I don’t see how much more you can endure, because before you know it, your reserves will suffer”, he said.
On his part, Mr. Victor Ogiemwonyin, Managing Director/Chief Executive, Partnership Investment Company Plc, said “I think the CBN has defended the naira well, so far. They have also allowed the naira to depreciate slightly against the dollar within the managed band it set for itself. I think it was a good compromise, letting the naira free fall is a bad idea.