The naira remains stable at the official and parallel markets, with the foreign exchange (forex) reserves standing at $46.7billion, says Exotic Capital, an investment and research firm.
The report by the firm says the naira exchanges at 362 to the dollar in the parallel market and 305.6 in the official market, and has remained at those rates since April, last year, after the Central Bank of Nigeria (CBN) resumed forex interventions in the market.
According to the report, although the level of reserves was still below the $64 billion realised in August 2008, it is nearly double the $24 billion recorded in October 2016, increasing by more than $22 billion in 15 months.
The reserves hit $46.7 billion on March 29, from just over $23 billion in October 2016, as the economy continues to attract huge investment inflows from foreign investors.
The economy benefited from increased forex supply with over $20 billion inflow to the Investors’ & Exporters’ (I&E) Forex Window since inception in April 2017.
The report said the macro fundamentals suggested the Central Bank of Nigeria’s (CBN’s) appropriate reaction function would have been to hold rates unchanged as it did in last week’s Monetary Policy Committee MPC meeting.
“We have written extensively on Nigeria’s multiple exchange rate system and will abstain from further discussion at present, suffice to say that a fairly valued naira at 360 to the dollar combined with high domestic rates has led to a tremendous increase in the level of gross foreign reserves held at the CBN,” the report said.
It added that, “With reserves at their current levels, it is easy to imagine the MPC being in a position where it could afford to cut as it is less dependent on attracting dollar inflows than it has been to both build reserves and stabilise the naira.”
Before the stability in the forex market and naira, the economy witnessed a depressed Gross Domestic Product (GDP) growth, which culminated in a recession in 2016. There was also rising inflation, which peaked at almost 19 per cent in January 2017 and a persistently rising unemployment rate to 14.23 per cent in 2016 fourth quarter from 6.41 per cent as at 2014 fourth quarter. There was also a significant depreciation of the exchange rate, reaching N525 to $1 in February 2017 and witnessed a fast depletion of the reserves which bottomed out at about $23.6 billion in October 2016 from as high as $40 billion in January 2014.