The Deputy Governor, financial system stability, Central Bank of Nigeria (CBN), Dr.Joseph Nnanna, says the external reserves have hit $34 billion from $33.6 billion.
Nnanna said the figure has been rising quickly, based on a 30-day moving average, since hitting the $32 billion mark on September 18.
At the investiture of the Chartered Institute of Bankers of Nigeria (CIBN) at the weeken, Nnanna said the exchange rate stability achieved so far by the apex bank will remain.
“We have achieved stability and the stability is here to stay,” he said.
Speaking about currency volatility and its effect on the economic cover the reserves provide, Nnanna said if managed properly, inflows could cater appropriately for government spending.
“The sustainability is already evident, the reserves are growing,” he said.
“When we had volatility, the reserves were as low as $20bn.
“But let me say one thing: Nigeria can make do with a reserve level of $20bn but it is the press who gives the impression that if the reserves fall below $30bn, then there is a problem.
“All we need to manage the economy and manage it properly is reserves that can cover at least three months of import.
“And in fact, as it is, $10bn or $12bn can give us reserve coverage of four months.”
Pointing to the impressive performance of the investors and exporter’s foreign exchange window (I&E window), Nnanna said exchange rate convergence was the way forward.
“Our exchange rate is convergent; we are getting southward,” he said.
“For us at the CBN, we believe that organic convergence is the way to go.”
Recall that the external reserves rose to $33.11 billion on October12.
That put the country’s dollar reserves back at a level not seen since December 2014.
Recall that as at September 14, the reserves stood at $33 billion, riding on the back of increased oil earnings.
The acting Director, Corporate Communications of the apex bank, Isaac
Okorafor, had said last month that the accretion to the foreign reserves was a further indication that the economic recovery that started in the second quarter of the year would be consolidated.
Speaking on behalf of his principal, Godwin Emefiele, the CBN spokesman expressed assurance that the bank would work hard to keep growing the reserves and strengthening the economy.
On improved reserves, Uche Uwaleke, the Head of Banking & Finance Department of the Nasarawa University, Lafia, had recently said:
“The nation is highly import dependent. This dependence has really eaten deep into our external reserves. The CBN requires the foreign reserves not only to intervene in the foreign exchange (forex) market, but also to maintain the stability of the local currency.” It was in the process of making large amounts of foreign exchange (forex) available to the market that had led to the appreciation of the Naira by over N85 in less than one week
early this year. And through series of intervention, the apex bank was able to rejuvenate the currency from about ₦520 per dollar to its current level of ₦360/$.
Apart from performing the above role, Uwaleke also explains other uses to which CBN can be put the reserves.
“The CBN also requires the foreign reserves to manage inflation because high exchange rate also rubs off negatively on inflationary pressure. Reserves are also required to make the country appear credit worthy because if your reserves drop to a particular level, at some point our reserves were getting very close to a point where it could not sufficiently finance three months of import, which is the threshold. And once your reserves drops below three months of import, then you are not credit worthy.
“A study by Tule et al (2015), which sought to determine an optimal forex reserves for Nigeria, established a minimum core foreign reserves level of $32billion (being equivalent of 7.2 months of import). The International Monetary Fund (IMF) recommends three months of import cover as a minimum benchmark for reserves”.