NIGERIA: Nigeria’s external reserves have climbed above $55 billion, strengthening the country’s foreign exchange buffer, but the naira’s latest movement suggests that a larger reserve position has yet to translate into an immediate appreciation of the currency.
Figures from the Central Bank of Nigeria (CBN) showed that external reserves stood at $55.22 billion on October 30, representing a 27.91 per cent increase from the $43.17 billion recorded during the corresponding period last year.
The improvement provides the country with a stronger pool of foreign currency to meet external obligations and potentially support interventions in the foreign exchange market when necessary.
However, the naira opened November with a marginal depreciation at the official market, trading at N1,347.94 to the dollar on Monday, compared with N1,346.26 on the last trading day of October.
BusinessDay reports that the currency also traded around N1,385 to the dollar in the parallel market on Tuesday morning, leaving a difference of approximately N38 between the two rates.
The movement in the official market coincided with a significant slowdown in interbank foreign exchange transactions. Turnover fell to $21.77 million on Monday from $58.85 million on Friday, while the number of recorded deals dropped from 72 to 23.
The figures present a mixed picture for the foreign exchange market. Nigeria is building stronger external reserves, but the level of reserves alone does not determine the daily value of the naira.
The availability of dollars, demand from importers and other market participants, investor confidence and the consistency of foreign exchange inflows remain important considerations.
For businesses that depend on imported raw materials, machinery and other inputs, the immediate concern remains the cost and availability of foreign currency.
The challenge for monetary authorities is to ensure that the improvement in external buffers is accompanied by more predictable foreign exchange supply and reduced pressure on the domestic currency.
