The nation’s foreign exchange reserves have plunged below $42bn, hitting their lowest level in more than eight months, according to latest data from the Central Bank of Nigeria.
The external reserves, which rose to a high of $47.865bn on May 10, stood at $41.99bn as of October 31, the lowest since February 26.
The Director, Corporate Communications, CBN, Mr Isaac Okorafor, explained early last month that the external reserves had been going down recently because of higher yields in the United States.
Okorafor, however, gave an assurance that at $44bn then, the reserves were sufficient to take care of the nation’s import bill for 17 to 20 months, much more than the three-month standard recommendation.
According to him, some foreign investors who have gone to emerging markets to take advantage of the high yields have had to go back to the US because of better opportunities there at the moment.
“The drop in our forex reserves is basically as a result of the capital flow reversals arising from rising interest rates in the United States. You will recall that the Federal Reserve has been raising rates and has even given guidance that this would continue in the near term,” he added.
Bloomberg reported on Friday that the CBN had done a good job keeping the naira stable, but it was paying a high price.
It noted that the naira had barely budged this year, weakening less than one per cent against the US dollar. That compares with 14 per cent for South Africa’s rand and 4.3 per cent for major emerging-market currencies, which have been battered by the dollar’s strength and trade tensions between the US and China.
The cost for Nigeria has come in the form of falling reserves and higher bond yields needed to prop up the currency and attract portfolio investors. Since peaking in mid-May, foreign-exchange reserves have dropped by $5.9bn, or 12 per cent, to $42bn.
The CBN Governor, Mr Godwin Emefiele, at the International Monetary Fund’s annual meetings in Bali last month, noted that Nigeria had to choose between building reserves and having a stable currency and that the latter was preferable,
But the central bank might get nervous if they dip below $40bn, which could happen as soon as this month, especially with investors getting jittery about February’s elections.