The external reserves, which rose to a high of $47.865bn on May 10, stood at $41.99bn as of October 31, the lowest since February 26.
The PUNCH reported on October 18 that the reserves had dropped to a seven-month low, losing $1.02bn in the 13 days to October 15 as it fell to $43bn.
The Director, Corporate Communications, CBN, Mr Isaac Okorafor, explained early last month that the external reserves had been going down recently because of higher yields in the United States.
Okorafor, however, gave an assurance that at $44bn then, the reserves were sufficient to take care of the nation’s import bill for 17 to 20 months, much more than the three-month standard recommendation.
According to him, some foreign investors who have gone to emerging markets to take advantage of the high yields have had to go back to the US because of better opportunities there at the moment.
“The drop in our forex reserves is basically as a result of the capital flow reversals arising from rising interest rates in the United States. You will recall that the Federal Reserve has been raising rates and has even given guidance that this would continue in the near term,” he added.
Bloomberg reported on Friday that the CBN had done a good job keeping the naira stable, but it was paying a high price.
It noted that the naira had barely budged this year, weakening less than one per cent against the US dollar. That compares with 14 per cent for South Africa’s rand and 4.3 per cent for major emerging-market currencies, which have been battered by the dollar’s strength and trade tensions between the US and China.
The cost for Nigeria has come in the form of falling reserves and higher bond yields needed to prop up the currency and attract portfolio investors. Since peaking in mid-May, foreign-exchange reserves have dropped by $5.9bn, or 12 per cent, to $42bn.
Yields on the government’s one-year naira bills have soared more than 450 basis points in that time to 16.6 per cent, the highest level this year.
The CBN Governor, Mr Godwin Emefiele, at the International Monetary Fund’s annual meetings in Bali last month, that Nigeria had to choose between building reserves and having a stable currency and that the latter was preferable,
The nation’s buffers are still large. Standard Bank Group Limited estimates that its reserves equate to almost 13 months of imports, which is much higher than the IMF’s recommendation of at least three months’ worth of cover.
But the central bank might get nervous if they dip below $40bn, which could happen as soon as this month, especially with investors getting jittery about February’s elections, according to analysts at Standard Bank’s Nigerian unit.
“What price do we have to pay to keep the currency stable?” they said in a note on Thursday. “The effective yield on the one-year Treasury bill is now about 17 per cent. With elections just around the corner, we might just need as much as 20 per cent to convince fixed-income investors to roll over.”