The nation’s foreign reserves dropped to below $30 billion for the first time in five months, putting more pressure on the Central Bank of Nigeria’s (CBN’s) bid to defend the Naira and avoid devaluation.
Gross reserves slipped to $29.92 billion on November 30, the first time they have fallen below $30 billion since July 13, according to data from the CBN.
They have fallen by 20 per cent since the end of June 2014, when Brent crude prices began a more than 60 per cent plunge, hammering Nigerian finances.
The foreign exchange reserves fell to $30.04 billion by November 26 from $30.10 billion the month before. The reserves were down 18.6 per cent on the year from $36.9 billion in the same period last year.
Also, the reserves fell to $30.13 billion by October 27, down 0.84 per cent from a month ago, the CBN data also showed. The fall in reserve reflects the sale of dollars by the central bank to defend the Naira currency which has been hit by the plunge in oil prices.
The dollar reserves have been hit by a plunge in crude prices and the central bank’s decision to defend the currency.
“With the oil price remaining low, the pressure isn’t dissipating,” said Ikechukwu Iheanacho, who manages N40 billion ($202 million) of stocks and bonds for Lagos-based Chapel Hill Denham Securities Ltd. “It raises questions about how long the central bank can continue defending the Naira.”
The Naira has been all but fixed at 197-199 per dollar since early March after Governor Godwin Emefiele restricted bank access to foreign exchange, even as other major oil exporters such as Russia, Colombia and Angola let their currencies weaken.
In June, Emefiele stopped importers of about 40 items, including toothpicks and glass, from obtaining dollars.
Emerging-market investors including Aberdeen Asset Management Plc, AllianceBernstein and Investec Asset Management have sold Nigerian bonds and stocks this year to avoid what they see as an inevitable devaluation, which would cause losses on their holdings in foreign-currency terms.