CBN: Why foreign reserves are dropping

The Central Bank of Nigeria (CBN) says there is no cause for alarm over the country’s dwindling foreign reserves.

Speaking in Abuja on Thursday, Isaac Okorafor, CBN spokesman, said the fall in reserves is due to a hike in interest rates by US Federal Reserve and the bank’s interventions in the forex market

“It’s also on social media that our reserves dropped by $1.45 billion in one month. We are not politicians. Of course, I want you to understand that the reserves level is a moving figure; at times, it rises and other times, it comes down. And as we speak, it’s a little over $44 billion,” he said at the 13th Abuja International Trade Fair.

“You’ll recall that there was a time we survived on even $23.2 billion, the economy was running. Now, we are over $44 billion and the reason why it’s going down gently is because there’s a global squeeze on emerging markets: the Central Bank of the USA which is the Fed had been raising interest rate and you know international capital goes to where it earns better returns.

“So, those who came into our economy to take advantage of the returns here seems to have found better returns in the US and it’s not just in Nigeria, it’s happening to South Africa, Egypt, Pakistan, Iran, Argentina, Brazil, Turkey even China.

“China has lost over 1.3 per cent of its currency. Argentina lost 134 per cent; Iran, India, some of them lost 18 per cent, 17 per cent, but here in Nigeria, our currency has gained six per cent in the last one year.

“You can see that the reversal of capital flows which is eating most economies and bringing about depreciation in their currency is not affecting us for two reasons — we’ve built enough buffers of reserves to be able to tackle situations like these.

“Secondly, we’re using the reserves to defend the value of our currency. So that also accounts for why it’s dropping.

“Investors who brought in dollars, of course, we have a capital importation policy. If you bring your dollars, when you’re leaving, we give it to you.”

Okorafor said the reserves can support between 17 and 18 months of import whereas the international standard is three months import.

At present, Nigeria has $44 billion in its foreign reserves.