Foreign reserves dropped by $1.14trn in 5 months — CBN

By Kayode Tokede

The Central Bank of Nigeria (CBN) has disclosed that foreign exchange buffer dropped by $1.14trillion in five months of 2021.

The foreign reserves opened 2021 at $35.37billion and closed May 28, 2021 at $34.23billion.

Analysts have attributed the decline in foreign reserves to CBN weekly intervention and dwindling foreign exchange inflow into the country.

The country’s foreign reserves lost $680million in May, falling to $34.2billion on May 30 from $34.88billion as of April 30.

Speaking on the decline at the recent Monetary Policy Committee meeting, the CBN Governor, Godwin Emefiele, said, “This reflects sales to the foreign exchange market and third-party payments.”

In March, the reserves lost $178million after dropping from $34.99billion as of March 1 to $34.82billion as of the end of March 31.

In February, the reserves dropped by $1.1billion, falling from $36.19billion as of February 1 to $35.09billion on February 26.

The CBN, in its January economic report, said, “As a consequence of the lower foreign exchange receipts, the official external reserves declined.

“External reserves stood at $35.44billion at end-January 2021, a decrease of 2.8 per cent and 3.5 per cent from $36.46billion in December 2020 and $36.73billion in January 2020.”

Meanwhile, the naira appreciated by 0.3per cent to N410.75/Dollar at the Investors & Exporters (I&E window  but depreciated by 1.4 per cent  to N502.00/USD at the parallel market.

At the IEW, total turnover (as of 3rd June 2021) decreased by 59.6 per cent WTD to $535.38 million, with trades consummated within the N400.00 – 420.47/Dollar band. In the Forwards market, the rate was flat across the 1-month (N413.54/Dollar), 3-month (N420.34/Dollar) and 6-month (N429.34/Dollar) contracts, but depreciated on the 1-year (-0.1 per cent to N448.02/Dollar) contract.

“We expect improved liquidity in the I & E FX over the medium term, given the higher oil prices and an expected increase in crude oil production volume. Accordingly, we expect the naira to remain relatively range-bound (N410.00/Dollar – N415.00/Dollar) at the I & E FX,” according to analysts at Cordros capital.

The overnight (OVN) rate contracted by 392basis points w/w, to 15.3per cent. The contraction was due to an improvement in system liquidity (this week’s average: c. N248.79 billion vs prior week: c. -N300.55 billion) as inflows from OMO (NGN55.46 billion) offset outflows for CBN’s weekly FX and OMO auction (N18.30 billion).

It was another week of bearish trading in the Treasury bills secondary market, following the absence of renewed injections despite the improved system liquidity.

Specifically, the average yield across all instruments expanded by 28basis points to 8.3per cent. Across the market segments, the average yield closer higher by 39 basis points to 10.0per cent at the OMO segment and by 16 basis points to 6.3per cent at the NTB segment.

This week, the CBN sold NGN18.30 billion worth of bills to market participants at the OMO auction and maintained stop rates across the three tenors, as with previous auctions.

Proceedings in the Treasury bonds secondary market turned bullish as investors’ cherry-picked attractive priced instruments across all tenor segments of the Treasury bond curve.

Consequently, the average yield contracted by 31 basis points to 12.2per cent. Across the benchmark curve, the average yields contracted at the short (-37 basis points), mid (-29 basis points) and long (-30basis points) segments, with major buying interests, witnessed on the MAR-2024 (-54 basis points), MAR-2027 (-35 basis points) and MAR-2036 (-46 basis points) bonds, respectively.