CBN blames the decline in external reserve on the high cost of imported refined petroleum products

The Central Bank of Nigeria has attributed the drop in Nigeria’s external reserves to the high cost of imported refined petroleum products.

This was revealed in the Monetary Policy Meeting communiqué, which was posted on the CBN’s website.

The CBN’s Monetary Policy Committee unanimously voted to raise the benchmark interest rate to 13% to contain inflation and strengthen the Naira.

What the CBN is saying

The CBN said, “Gross external reserves declined moderately to US$38.36 billion as of May 19th, 2022 from US$39.28 billion at end-March 2022. This was attributed to the weak accretion to the reserves from exports and the high cost of importation of refined petroleum products.”

The CBN also indicated that the financial system is stable, however, it still has to be brought down to the prudential level.

The apex bank said, “the Capital Adequacy Ratio (CAR) and the Liquidity Ratio (LR) remained above their prudential limits at 14.6 and 43.7 per cent, respectively. The Non-Performing Loan (NPL) ratio stood at 5.3 per cent in April 2022, compared with its prudential limit of 5.0 per cent, reflecting sustained stability in the banking system, though there remains a need to bring this down to the prudential limit.”

What you should know

  • Nigeria’s external reserves depreciated further by 0.11% on Friday, May 20, 2022, to stand at $38.75 billion from $38.79 billion recorded as of the previous day.
  • The drop in foreign reserves can be linked to the Central Bank’s ongoing involvement in the FX market to preserve the stability of the local currency.
  • The apex bank’s IEFX windows also offered high-interest rates to foreign portfolio investment (FPI) in order to attract associated USD$ inflows. The CBN spent trillions of naira to pay interest on questionable OMO bills that garnered up to $13.4 billion in FPI in 2019.
  • Nairametrics reported that Nigeria’s external reserve received a boost of $5.15 billion in 2021, bolstered by the $4 billion Eurobond secured by the federal government in September 2021 and the $3.35 billion IMF facility under the Special Drawing Rights.
  • The country’s foreign reserves increased by $5.99 billion in October 2021, but since November, it has been declining, and has failed to reach the $40 billion mark.

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