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Foreign reserves may fall to US$30b by December — CBN

The Central Bank of Nigeria (CBN) has expressed fears that Nigeria’s external reserves may fall to $29.9billion by end of December this year.

According to CBN’s recently published Monetary Credit, Foreign Trade and Exchange Guidelines for Fiscal Years 2020-2021, the concerns emanated from the country’s worsening current account balance, decline in oil price, and risk aversion on the part of investors which would affect capital inflows.

The apex bank, therefore, concluded that these factors combined with speculative activities at the investors and equity window and Bureau de Changes would exert pressure on the exchange rate. As a result of these dislocations, CBN estimates that the external reserves would be pressured lower to between US$29.9bn and US$34.3bn by the end of December 2020.

Exchange rate and external reserves have been pressured in 2020 due to decline in oil receipts and mounting capital reversals among FPIs. The CBN has been reluctant to intervene actively in the different segments of the markets following the significant dip in April.

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Nevertheless, United States Dollar loans from the International Monetary Fund, IMF (US$3.4bn in April 2020) amidst limited interventions in the FX market has supported accretion in the external reserves in recent months. However, the limited intervention in the various segments of the FX market has led to a backlog of FX demand estimated at US$7bn.

Furthermore, the bank expects the country to continue running a trade deficit for the rest of the year as oil receipts which accounts for over 70% of export earnings remain weak. And with huge OMO maturities expected till year end, it is expected that demand from FPIs who want to repatriate their funds to exert further pressure. .