Foreign Reserves Rise to $34.85b on ‘Naira For Dollar’ Policy

The ‘Naira for Dollar’ policy of the Central Bank of Nigeria (CBN) has led to positive accretion to the foreign reserves exactly one month after takeoff.

The foreign reserves, on April 1, stood at $34.85 billion, representing $404 million increase compared to $34.41 billion on March 11.

The uptick in reserves has been attributed to CBN’s ‘Naira for Dollar’ policy which has seen dollar inflows pass through commercial banks, instead of unofficial channels.

Also helping reserves accretion is the continued rise in benchmark Brent crude oil price, which stood at $63.29 per barrel as at April 8, representing about $23.29 above the $40 per barrel benchmark for 2021 budget.

According to the CBN Governor, Godwin Emefiele, the ‘Naira for Dollar’ policy, gives N5 rebate for every $1 sent by Nigerians in diaspora to the country, which is paid directly to the account of the beneficiaries, following receipt of the remittance inflows.

The CBN had promised that the new policy would provide Nigerians in the Diaspora with cheaper and more convenient ways of sending remittances to Nigeria.

Defending the dollar policy, Emefiele said the move was also to increase the transparency of remittance inflows and reducing rent-seeking activities. He expressed optimism that the new policy measure will encourage banks and financial institutions to develop products and investments vehicles, geared towards attracting investments from Nigerians in the diaspora.

Reiterating the provision a new circular on remittances, the CBN boss said the bank introduced the rebate of N5 for every $1 of fund remitted to Nigeria, through International Money Transfer Operators (IMTOs) licensed by the Central Bank in order to incentivise the process of remittance.

He emphasised that the new measure would help to make the process of sending remittance through formal bank channels cheaper and more convenient for Nigerians in the diaspora.

Also, Forex Trading Associate, AZA, a global forex dealer, Oghenefejiro Eduviere, said naira would remain stable on the parallel market, hovering around the N480 to N490 level, as the Central Bank of Nigeria’s ‘N5 for $1’ incentive scheme encourages forex flows to go through banks.

“We see trading on the Investors and Exporters (I&E) Forex window extending depreciation towards N435 in the short term,” he said in emailed notes to investors.

“The naira strengthened on the parallel market, trading in the 478/485 to the dollar range vs. 482/486 at the end of last week, while depreciating on the official I&E window, from N408.67 to N411 to dollar amid accumulated demand for dollars carried over from the long Easter break,” he added.

On the foreign reserves, Fitch Ratings, a global rating agency predicted that Nigeria’s external reserves would rise to $42 billion by year-end.

In a report titled, “Depreciatory Pressures on Key Sub-Saharan African Currencies to Lessen,” Fitch Ratings had hinged the forecast on its expectation that Brent crude would average $53 per barrel, compared to the $43.1 per barrel recorded in 2020. Moreover, the agency anticipated that the CBN would allow the official naira exchange rate to depreciate further over the course of 2021, notwithstanding improved terms of trade and foreign exchange reserves.

“Given rising oil prices in 2021, we expect forex reserves to rise to an average of around $42 billion in 2021 (around eight months of import cover), compared to $36 billion in 2020.

“However, this will not negate the impact of persistent depreciatory pressures on the naira, notably as a result of rising dollar demand driven by the domestic economic recovery,” it stated.