VENTURES AFRICA – Following the massive setback in the Nigeria’s currency, there is the tendency that country’s foreign exchange reserve will hit a low.
Statistics on the Central Bank of Nigeria(CBN) website indicate a decline in the country’s foreign reserve since June 6, 2012. As at June 6, the country’s reserve stood at $37. 768billion but it has dropped significantly to $307million by June 15.
According to Punch, a local Newspapers in Nigeria’s economic hub, Lagos, the Central Bank of Nigeria had been selling unspecified amounts of dollar at the inter-bank market to calm the market and help support the local currency.
In trying to redeem the status of Naira in the Market, the CBN increased its dollar sales to $400m last on Wednesday at the bi-weekly auction, from $300m sold on last Monday. However, analysts say it is likely for the country to depend on the Forex reserve to defend the Naira from crumbling.
A currency dealer at Wholesale Dutch Auction System, said, “In the absence of any external dollar inflow, the CBN will have to lean on the external reserves to defend the Naira. We have seen signs of this recently, as the apex bank has increased its Dollar supply at the WDAS to support the Naira.”
“If the weakening in the Naira persists, which we expect, then the nation’s Forex reserves could deplete even faster than the CBN anticipates,” Managing Director, Financial Derivatives Company Limited, Bismark Rewane said.
Rewane also opined that Naira may continue to fall if he continuous decline in oil prices at the international market persists. “If oil prices were to drop to $80pb, there is a 95 per cent likelihood that Forex inflows will decline to approximately $3.03 billion, pushing the reserves to as low as $22 billion, covering less than three months of imports,” he said.
“The market would likely see such depletion as a sign of weakness, which could lead to a further increase in currency speculation.”
Meanwhile, the apex bank Director, Corporate Communications, Ugo Okoroafor, said the bank in control of activities in the Forex market, adding that the financial institution will not increase its target band beyond N150 and N160.
Nigeria has the second largest economy in Africa, with an estimated population of 150 million, the West African nation stands out as the most populous black nation on earth.
The country is also one of the leading oil producing nations in world, with an abundance of minerals and other natural resources. However, the nation’s seeming reliance on oil exports have hindered the much acclaimed potential of its economy.