The country’s foreign exchange reserves jumped by 3.63 per cent on to $36.08 billion on April 13, the highest in more than one year, the latest central bank data showed on Monday.
The forex reserves of Africa’s biggest crude exporter stood at $34.47 billion a year ago and was at $34.74 billion a month earlier.
Though the reserves have been declining in the past three years despite rising oil prices, gradual reduction in demand for dollars at the bi-weekly forex auction this year has meant the central bank spends less of its reserves to support the naira.
Nigeria relies on crude exports for more than 95 per cent of its foreign exchange earnings and investors watch reserve data closely to gauge the defences of Africa’s second largest economy against a potential dip in oil prices.
“Foreign reserves have picked up marginally in recent weeks as dollar demand at the WDAS (foreign exchange auction) window dissipated amid improved naira confidence,” said Samir Gadio, senior strategist at Standard Bank.
He said the increase in reserves is still modest.
Gadio said the Excess Crude Account (ECA), meant to deposit savings to cushion against future oil price falls, is constantly raided and shared among the three tiers of government, which prevents a faster rebound in overall forex reserves.
“Our take is that these improvements are due in part to the sharp fall in imports of petroleum products in Q1 (first quarter),” FBN capital’s Gregory Kronsten wrote in a note to investors and forwarded to Reuters on Monday.
The government slashed fuel subsidies in January, as a compromise, after a public outcry against plans to scrap them altogether.
“The fuel subsidy cut in January, although a retreat from the proposed deregulation, should bring lasting gains in terms of fx savings,” FBN capital said.