CBN spending to defend Naira jumped 150.7% in Q1 – Expert
Data from the Central Bank of Nigeria (CBN), on Thursday, showed that currency in circulation at the end of March rose by N16.33 billion, or 1.04 per cent.
According to the data on the CBN’s website, currency in circulation stood at N1.574 trillion at the end of March, compared with N1.558 trillion in the corresponding period of February.
The February figure however represented a slight decline from the January level, when it shed N30.449 billion or 1.91 per cent from N1.588 trillion.
The figure released for the first three months of the year, were however lower than that of December 2013, a festive period when currency in circulation stood at N1.776 trillion.
Meanwhile, economic and investment analysts at Lagos-based investment banking group- Dunn Loren Merrifield, on Thursday noted that the aggressive defence of the Naira by the CBN was one significant occurrence in the first quarter of 2014.
In a media presentation at a roundtable titled: “DLM First Quarter Economic Review,” in Lagos on Thursday, Tola Odukoya, the group’s Vice President, Asset Management & Research, noted for example that in defence of the Naira, average monthly spend by the apex bank rose significantly by about 150.78 per cent. The CBN, he said, sold an average of $3.21 billion monthly in foreign exchange in the Wholesale Dutch Auction System/Retail Dutch Auction System. In the corresponding first quarter of 2013, he recalled, average sales stood at $1.28 billion, while that of 2012, was $1.70 billion monthly.
But for this stout defence, he noted, “the domestic currency (Naira) would have found a new equilibrium around the N165 to N170/$ levels.”
Despite this defence however, he noted that the Naira still weakened in the first quarter of 2014 by about 3.88 per cent to close March at N165.00/$1 in the inter-bank market, up from N158.84/$1 at the beginning of the year. A depreciation of about 0.03 per cent, he added, was recorded in the official market by the end of the quarter at N155.74/$1.
This increased funding of the foreign exchange market by the CBN to stabilize the Naira, he continued, also depleted nation’s external reserves, which fell to $37.8 billion at the end of the period under review, from $43.6 billion in December 2013.
This is also despite the $1 billion rise in the Excess Crude Account (ECA) during the quarter to close March at about $3.5 billion.
Odukoya, said his colleagues (analysts) at Dunn Loren Merrifield expressed “concern on the decline in external reserves, as we re-iterate the need to rebuild the nation’s fiscal buffers.”
Continuing, he said, “the weakening of fiscal buffers increased the economy’s reliance on portfolio flows which is a key driver of risk of exchange rate stability.
Source: Daily Independent (by Kingsley Ighomwenghian / Deputy Editor)
