External reserves fall to six-month low of $36.7bn

Nigeria’s foreign reserves fell to a six-month low of $36.7 billion as at December 1, down by 4.5 per cent from the $38.450 billion it was as at November 2.

The Central Bank of Nigeria (CBN) revealed this on its website on Wednesday.

The central bank has been defending the naira from the external reserves. The naira has been under pressure as a result of the dwindling oil prices.

The CBN  officially lowered the value of the naira against the US dollar by moving the midpoint of the naira at the official window from N155 to a dollar, to N168/$1. In addition, it also widened the band around the midpoint by 200 basis points from +/-3 per cent to +/-5 per cent.

Similarly, the monetary policy rate (MPR) was increased by 100 basis points from 12 per cent to 13 per cent, while the cash reserve ratio (CRR) on private sector deposits was also raised by 500 basis points from 15 per cent to 20 per cent with immediate effect.

But the CRR on public sector deposits was retained at 75 per cent, just as the net open foreign exchange trading position was left unchanged at one per cent.

The naira has fallen 11.3 per cent against the dollar this year.

Analysts at CSL Stockbrokers however argued that the action of the central bank last week was designed to address currency weakness and reestablish the credibility of its policy.

According to them, the measures were a step in the right direction, even as they noted that the CBN had acknowledged the current state of markets.

“This will likely help it regain credibility in the eyes of investors, even if it comes at the expense of some short-term pain in the markets.

On a longer – and perhaps more cynical – view, however, the decisions represent the demise of a longstanding policy objective of forex stability,” they stated.