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AGGRESSIVE NAIRA SUPPORT TAKES TOLL ON RESERVES

By NBF News
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Stories BY NSE ANTHONY-UKO, Abuja
The Central Bank of Nigeria's (CBN) aggressive support of the naira in the month of June took its toll on the nation's foreign reserves which fell from its peak of $37.77 billion as at June 6, 2012 to $36.77 billion as at June 28, showing a decline of 2.64 per cent.

The nation's foreign exchange reserves dropped 2.17 percent month-on-month to $36.82 billion by June 27, compared with $37.64 billion a month ago, after a central bank intervention to support the naira, figures from the central bank showed on Friday.

The CBN increased its intervention in the foreign exchange market in the month of June in the bid to stabilise the naira and keep it from massive depreciation.

As indicated by the Wholesale Dutch Auction System (WDAS) data on the apex bank website, aggregate dollar supplied at the bi-weekly auction stood at $2.75 billion in June indicating a whopping increase of 69.75 per cent over the $1.62 billion sold in May and 154.6 per cent over the $1.08 billion sold in April through the same window.

Due to CBN's aggressiveness to stabilise the naira closed at the official market at N155.9/$1 at the end of June, indicating depreciation of  0.01 per cent compared to N155.75 at which is opened.

At the interbank, the exchange rate closed the month at N163.125/$1 compared to N159.65/$1 indicating a decline of 2.2 percent. At the bureau-de-change and parallel market, exchange rates were N164/$1 and N165/$1 compared to NN159.97/$1 and N162/$1, which showed depreciation of 2.52 per cent and 1.85 per cent respectively.

The naira was under pressure recently due to 'a pick-up in dollar demand, particularly from fuel importers, leading to the central bank having to make periodic interventions on the inter-bank market,' Gregory Kronsten and Olubunmi Asaolu, London-based analysts at FBN Capital Limited., wrote in a note to clients. They see the naira reaching 163 per dollar year-end and 170 by the end of 2013

The reserves were back to the level they were on May 10, at $36.85 billion, but were higher than the $32.01 billion the country had in reserve a year ago.

The naira has fallen in the last three months due to exit of offshore investors from the local debt market and strong demand for the dollar.

Dealers said the decline forex reserves were also due to the falling oil prices on the international market. Nigeria, Africa's top energy producer, depends on revenue from oil exports for 85 per cent of its reserves.

Cumulatively, the apex bank's intervention in WDAS for the second quarter stood at $5.45 billion. However, aggressive dollar supplied to authorised dealers during the second quarter is yet to be ascertained due to lack of data on total amount of the greenback sold by autonomous sources.

Besides drawing from the reserves to support the naira, the reserve also came under pressure from declining oil prices, production output as well as theft of the country's major revenue earner.

Coordinating Minister for the Economy and Minister of Finance, Dr Ngozi Okonjo-Iweala, earlier expressed concerns that daily declining crude oil production and sales were affecting the build up of the external reserves. In the month of April, the minister said daily crude oil production decline was at 17 per cent.

For the first quarter of 2012, CBN data indicated that foreign exchange demand by the authorised dealers stood at US$7.36 billion, a decline of 40.2 and 26.1 per cent below the levels in the preceding quarter and the corresponding quarter of 2011, respectively. The sum of US$7.98 billion was sold by the CBN during the review quarter, indicating a decline of 31.9 and 0.9 per cent below the levels in the preceding quarter and the corresponding quarter of 2011, respectively

Under the WDAS, the average exchange rate of the Naira vis-à-vis the US dollar depreciated by 1.4 per cent to N157.95 per US dollar from N155.74 in the preceding quarter. In the bureau-de-change segment of the market, the Naira traded at an average of N161.63 per US dollar, same as in the preceding quarter, but depreciated by 3.5 per cent below the level in the corresponding quarter of 2011. At the interbank segment, the Naira exchanged for an average of N159.20 to the US dollar in the first quarter of 2012, compared with N160.27 and N156.11 per US dollar in the preceding quarter and the corresponding quarter of 2011, respectively.

The premium between the WDAS and the bureau-de-change rates narrowed from 3.8 per cent in the preceding quarter to 2.3 per cent. Similarly, the premium between the WDAS and interbank rates narrowed from 2.9 per cent in the preceding quarter to 0.8 per cent in the review quarter.