Nigeria’s foreign reserves have decreased by $2.2 billion, raising concerns about the central bank’s backing of the Naira and the resolution of over $2 billion in foreign exchange backlog.......CONTINUE READING THE ARTICLE FROM THE SOURCE>>>>>
Naija News reports that this development follows remarks made by the Chief Executive Officer of Financial Derivatives, Bismark Rewane, who mentioned that the Central Bank of Nigeria (CBN) has expended $8.8 billion to support the Naira.
In a recent investor update, AIICO Capital Limited pointed out that trading activity remained strong, with transactions taking place within the range of $/₦1,490.00 to $/₦1,520.00 per US dollar, predicting that the Naira will continue to trade at these levels.
According to analysts, the pricing of money was predominantly affected by CBN’s interventions.
Reports had it that the CBN intervened in the foreign exchange market, selling US$66.80 million to licensed dealer banks. The ongoing FX sales to banks have also enhanced the foreign exchange supply to the Bureau de Change.
As a result, the Naira appreciated by N₦8.62 and ₦50.00, closing at $/N1,501.08 and $/₦1,510.00 in the official and parallel markets, respectively.
TrustBanc Financial Group Limited reported that Nigeria’s foreign exchange reserves fell by USD300.11 million week-on-week to USD38.74 billion, marking the sixth consecutive week of decline.
Reports indicate that the forex reserves have contracted by $2.2 billion since reaching a peak of $40.92 billion on January 6, based on data compiled by Bloomberg.
This decline represents the longest streak since November 2022 and is anticipated to bring Nigeria’s reserves to their lowest point since October.
Prior to this, the foreign reserves were recorded at $42 billion in December.
Recent Decline Of The Foreign Exchange
Naija News understands that in January 2025, the foreign exchange (FX) reserves experienced a notable decrease of $1.16 billion, effectively negating the $592.58 million increase observed in December 2024.
Data from the Central Bank of Nigeria (CBN) reveals that reserves decreased from $40.88 billion at the close of December to $39.72 billion by January 31, 2025. This represents the most significant monthly decline since April 2024.
Analysis of CBN data by Daily Trust indicates a consistent downward trend throughout January, with reserves falling from $40.88 billion on January 2 to $40.75 billion by January 10.
The decline intensified in the latter part of the month, dipping below the $40 billion mark on January 22 and concluding at $39.72 billion at the end of the month.
The $1.16 billion reduction in January corresponds to a 2.84% decrease within a single month.
The last instance of such a pronounced drop in reserves occurred in April 2024, when reserves saw a significant decline.
CBN Governor Yemi Cardoso attributed the previous drop in April 2024 to debt repayments and other routine financial commitments rather than measures taken to support the Naira.
How CBN’s Action Is Impacting Foreign Reserve
The decline observed in January is attributed to the Central Bank of Nigeria’s (CBN) increased dollar sales to Bureau De Change (BDC) operators, which is part of its strategy to stabilize the Naira.
The CBN has consistently asserted that its approach is designed to restore confidence in the foreign exchange market by ensuring adequate liquidity at the retail level.
In December, the CBN resumed dollar sales to BDCs, thereby injecting foreign currency into the retail sector.
According to a circular issued by the CBN, BDC operators have been granted temporary authorization to acquire up to $25,000 weekly in foreign exchange from the Nigerian Foreign Exchange Market.
Under this directive, BDCs are permitted to purchase foreign exchange from a single Authorized Dealer of their choice, provided they fully fund their accounts prior to accessing the market.
Transactions will be conducted at the prevailing rate of the Nigerian Foreign Exchange Market, and BDCs must comply with a maximum spread of 1% when pricing foreign exchange for retail customers.
This arrangement was initially set to be effective from December 19, 2024, to January 30, 2025.
However, the CBN has now extended the deadline for BDC operators to access the Nigerian Foreign Exchange Market for their weekly foreign exchange purchases.
In a circular signed by Dr. Williams Kanya, the Acting Director of the Trade & Exchange Department at the CBN, it was announced that the previous deadline of January 31, 2025, has been extended to May 30, 2025.
Meanwhile, CBN Governor, Cardoso at the MPC hosted last Friday also hinted at the conclusion of the verification process for the remaining $2.4 billion foreign exchange (FX) backlog, with payments for valid claims set to begin.
Cardoso noted that the FX backlog, which stood at $7 billion when he assumed office, has now been reduced to $2.2 billion. In March last year, he stated that all valid claims had been settled, leaving $2.4 billion flagged as potentially invalid after an investigation.