Nigeria’s external reserves, which upswing had been restrained due to the volatility in crude oil prices as well as recent pressure faced by the naira, dipped by a total of $532 million to $48.150 billion in the second quarter of 2013.
Data compiled from the Central Bank of Nigeria’s (CBN’s) website showed that the amount represented a decline by 1.09 per cent in the second quarter, compared to the $48.682 billion the reserves which are mainly derived from the proceeds of crude oil earning stood as at April 2nd.
The naira continued its downward slide against the dollar last week as it was hurt at the interbank market. Specifically it fell by N3.50 to close at N162.50 to a dollar at the interbank on Friday, lower than the N159 to a dollar it attained the preceding Friday. The naira recently suffered its biggest year-to-date loss.
The external reserves were almost stagnant in June as it fluctuated within a band of $48.150 billion and $48.49 billion. But the level of the external reserves is expected to cover about 11 months of imports.
The Financial Derivatives Company Limited (FDC) noted that the inertia in external reserves accretion could be attributed to the increased usage of the reserves to support the exchange rate, as well as a decline in forex inflows from offshore investors.
The Lagos-based financial advisory firm warned in its latest monthly report for June that: “Growth in external reserves may remain a challenge if the naira continues to face downward pressure on the back of increased dollar demand.”
The report showed that from March 2013, global oil prices began to fall noticeably to an average of $111.67per barrel (Bonny light), which was five per cent lower than the previous month’s average of $117.67pb.
The Organisation of Petroleum Exporting Countries (OPEC), the global oil cartel, the report said, had attributed this fall to renewed euro-zone fears as well as a reduction in refinery demand caused by substantial maintenance worldwide. It explained: “Since March, oil prices have continued to fall every month. As Nigeria is dependent on oil for about 80 per cent of its revenues, the development has intensified warnings from analysts about a possible relapse in the economy.
“In the forex market, an increasing demand for dollars, attributed to increased appetite by foreign investors, continuously put downward pressure on the naira and caused it to trade close to the upper limit of its three per cent band. Despite increased forex sales by the CBN, the naira traded at its weakest level of N162.3/$ and N164/$ in the interbank and parallel markets respectively on the 17th of June. The CBN is expected to continue its intervention to keep the naira stable.”
Nonetheless, the FDC report stressed that the production of oil needs to be bolstered in order to compensate for the fall in oil price. The activities of pipeline vandals and oil thieves, it also noted had resulted in loss of crude oil produced.
However, the CSL Stockbrokers, a division of FCMB (UK) Limited argued in a separate report that the CBN has continued to express its willingness and ability to maintain a stable exchange rate. It added that the reason the recent depreciation of the naira appeared large was because the country had become accustomed to an unusual degree of stability.