Reserves Rise over Reduced Funding for Forex


By Emele Onu, 07.18.2010 


Nigeria’s external reserves rose to $38.53 billion last weekend, from about $37 billion at the end of June, 2010, which represented about 3 per cent rise within just a fortnight.  Analysts attributed the rise to the shortfall in demand for foreign exchange, which they said lowered the utilisation of reserves for market intervention by the Central Bank of Nigeria (CBN).


At the official forex trading window, the wholesale dutch auction System (WDAS) last Wednesday, the CBN sold $249.30 million at N148.62 to the dollar, the same rate at which it sold $250 million to the dealer banks last Monday.The market regulator had at the previous week’s bi-weekly auction sold $150 billion (the previous Wednesday) and $117 billion (the previous Monday).  Forex traders said the reduction in funding for forex meant a build up in the country’s external reserves position. The monetary authority uses the external reserves to defend the value of the naira.The CBN had at a point in June funded the market to about $500 million, being sales to dealer banks on just a day in the bi-weekly trading. 


Nigeria’s external reserves, which ended 2009 at $42.40 billion had been depleted to $37 billion by the end of last month. The CBN noted early this month at the end of its Monetary Policy Committee (MPC) meeting that the reserves stood at $37.63 billion on June 23, 2010 representing a decrease of $1.19 billion or 3.06 per cent when compared with the level of $38.82 billion as at May 31, 2010. 


Analysts said then that the reserves at $37.63 billion, was only adequate to finance 16 months of import. But with the rise in the reserves to $38.53 billion, it can finance 17 months of import, which the analysts said was healthy compared to the internationally recommended benchmark of three months of import cover for a country’s external reserves.





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