Nigeria’s foreign exchange reserves fell below $40 billion for the first time in 23 months, as the country’s crude oil earnings remain under pressure in the international market, while the apex bank sustains its currency defence efforts.
While the yields on fixed-income securities have relatively been pressured in recent times, the monetary authorities may need to tweak the rates to attract foreign investors, to shore up the depleted reserves.
The falling reserves at $39.8 billion fell by about $7billion in the 23-month period, after rising to about $47 billion, but now raising concerns with uncertainty around the crude oil price – Nigeria’s major foreign exchange earner, and may soon cause panic demand by investors, causing a renewed exchange rate pressure.
Meanwhile, it would be a busy week for the policymakers and the economy, as the Monetary Policy Committee of the Central Bank of Nigeria (CBN), digests the meaning of the third quarter (Q3) growth at 2.28 per cent, current account balance for Q3, and inflation trends, to reach a decision on benchmark interest rate today.
Specifically, the report on Gross Domestic Product (GDP) in Q3, showed that despite a positive contribution from the non-oil sector, it was still weak.
A Senior Research Analyst at FXTM, Lukman Otunuga, said the nation recorded a current account deficit of $2.9 billion during the second quarter of 2019.“While a deficit is not necessarily bad, it does suggest that a country’s liabilities exceed its foreign assets.
Given how Nigeria imports more than it exports, there is a risk of the nation experiencing another deficit in Q3 – an outcome that could prompt foreign investors to call for Naira devaluation.
“There will be a strong focus on the interest rate decision on Tuesday (today). Given how inflationary pressures are making an unwelcome return, the CBN may think twice before cutting interest rates from 13.5 per cent.“
Written By Adeluwoye Comfort Eniola Obinwannem News