External Reserves Rise by $1bn in Three Days ( 8-05-2011 to 10-05 -2011), surprises in Nigeria!!


External Reserves Rise by $1bn in Three Days (11 May 2011)
The rise in crude oil prices at the international market on Monday has impacted positively on Nigeria’s external reserves, which increased significantly by $1.093 billion within only three days, the reserves advanced by 3.35 per cent to $33.722 billion on Monday, from the $32.629 billion it stood last Thursday. The external reserves stood at $33.5 billion as at April, as against the $33.2 billion it recorded at the end of March after it rose to $36.4 billion by mid March. The reserves had grown by $3.1 billion in March.
Foreign exchange dealers attributed the increase in the reserves to reduced pressure for dollars at the wholesale Dutch auction system (WDAS) since this month as well as soaring international oil prices. Oil price had risen by over four per cent on Monday (8-05-2011) as it gained 35 per cent from its figure a year ago after it dropped 15 per cent in the previous week in a biggest weekly loss since 2008. Reports had shown that crude oil for June delivery rose $4.22, or 4.3 per cent, to $101.40 a barrel on the New York Mercantile Exchange. Analysts maintained propped up Nigeria’s reserves which are derived mainly from the proceeds of crude oil production, even as the country’s 2011 budget is benchmarked at $75 per barrel. The CBN said it planned to use the country’s foreign reserves to prop up the currency in the event that it weakens.  The regulator said its targeted exchange rate regime of about N150 to the dollar band  was sustainable in the “short to medium term.”
Bloomberg quoted CBN Governor, Mallam Sanusi Lamido Sanusi, to have made this remark in an interview in London on Wednesday ( 10-05- 2011 ) The CBN has been defending the naira, attempting to keep it within a + or - 3 percent point band above or below N150 per dollar at its regulated Wholesale Dutch Auction System (WDAS). This is to ensure that high demand for the dollar, occasionally experienced at various segments of the forex market does weaken the local currency as well as to curb inflation. The regulator defends the naira against the greenback by ensuring that it intervenes by raising supply at the WDAS whenever demand pressure surfaces so as to ensure that the local currency does not slip below its targeted limit. Sanusi ( CBN Governor) explained: “A weaker currency would have serious economic ramifications for costs of production, for the cost of oil imports, for employment in an import dependent economy. We drew down reserves to maintain stability of the currency. It’s not really a disaster; we’re not in a desperate situation.” According to the banking sector regulator, in addition to the huge amounts spent on petroleum subsidies, the country was also expending foreign exchange on import of food items such as rice whereas what was needed was the implementation of policies that will lead to food security and total self sufficiency. “The solution to reserve depletion lies in the implementation of appropriate reforms with regard to industrial and trade policies aimed at reducing import dependence, which are beyond the scope of monetary policy. “It’s very easy to build up reserves. I can decide today that I’m going to only sell $100 million at auction and make the naira N180, N190, 200: What are you suggesting I build up reserves and kill industry?” Sanusi asked.
(Udoh Essien Christopher,) Volgograd State Technical University, Russia Federation.
News, Nigeria.

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