Naira crashes to N890 after JP Morgan’s revelation on Nigeria’s reserves

The naira has crashed to N890, and it is heading to N900 after JP Morgan Chase & Co. claimed that Nigeria’s net foreign exchange reserves is far lower than the $37.8 billion published by the Central Bank of Nigeria.

The US-based financial institution said that with the position of the reserves, the country does not have the capacity to float the naira.

In reaction, the naira fell to N890 on Tuesday after trading around N855 on Monday. It rose as high as N900 before settling for N890 per dollar.

The naira also recorded a daily high of N799.9 per dollar before moderating to N770.7 at the Nigerian Foreign Exchange Market, formerly the Invertors and Exporters’ window. It was reported that JP Morgan estimated Nigeria’s net reserves at $3.7 billion at the end of 2023, up from US$14 billion at the end of 2021.

JP Morgan said Net FX reserves are significantly lower than previously estimated. Based on partial information from the audited financial accounts, we estimate that CBN’s net FX reserves were around US$3.7bn at the end of last year, up from $14.0bn at the end of 2021.

In arriving at the said estimate, we make a few assumptions, which, if incorrect, would substantially
change the picture.

They include an addition of $5.0bn in IMF Special Drawing Rights (SDR) to external reserves in order to arrive at total gross FX reserves of $37.8bn, broadly in line with the 30-day moving average of $37.08bn previously published on the central bank’s website; adjusting the gross external reserves with three key FX liability lines that include FX forwards ($6.84bn), securities lending ($5.5bn), and currency swaps ($21.3bn); and estimating currency swaps by backing out FX forwards and outstanding OTC Futures balances from an overall aggregate published in the financial accounts.

The naira had traded as high as N955 per dollar before the CBN took decisive steps to keep the price as low as N820 or N830 on Friday, depending on the seller. The President of the Association of Bureau de Change Operators of Nigeria said the naira is under attack because it lacks market fundamentals.

The naira may likely crash further because operators have become more confident that CBN may not be able to defend the naira. The demand was so high today that it even rose to N900," a BDC operator in Zone 4, Abuja, told an online medium, the Whistler, recently.

The process of rebuilding the reserve buffers may be challenging for the country, as JP Morgan said
significant reforms are needed to attract foreign direct (and portfolio) investment on a multi-year basis. The main point of contention behind this price action has been a lower than initially anticipated net FX reserves position, where some clarity is still awaited. While gross reserves at $37 billion are a positive, higher short-term liabilities do raise a concern in the case of roll-over pressures, and thus, an increased risk premium is warranted, JP Morgan said.


See also Nigeria’s upstream oil output rises 30% to 1.6m bpd

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