Fakoyejo OlalekanThe Central Bank of Nigeria (CBN) has taken foreign exchange out of the external reserves to defend the naira against the dollar, resulting to the reserves depleting by $337 million.
According to data from the central bank, it was gathered that the external reserves fell to $38.882 billion on August 11, down from $39.219 billion reported at the end of last month.
This extended the depletion of the foreign reserves to 40 days, having started its decline since July 18, when the base was around $39.445 billion. It had risen from $38.421 billion on June 6.
However, the gains from the rise was wiped off in the middle of July, and the external reserves has been on a steep decline ever since, dropping about $976 million in the process.
Analysts at the Financial Derivatives Company Limited (FDC) said the decline in the external reserves was due to the Godwin Emefiele-led CBN taking out of the base to meet forex demand and protect the naira from further depreciation.
In its Bi-Monthly Economic Bulletin, FDC analysts said, “The depletion on the reserves was majorly due to CBN’s supply of foreign exchange to stabilise the currency.”
The bulletin reads, “The external reserves is expected to continue its downward trend as the CBN intensifies its efforts to stabilise the currency by supplying foreign exchange to the I & E (Investors and Exporters) window.
“Because of the country’s low oil production levels, high oil prices may have less of an impact on the country’s external reserves.
“A constant depletion of the external reserves is likely to discourage the CBN from supplying foreign exchange in the foreign exchange market. This could further stoke currency depreciation as demand outpaces supply.”
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