Nigeria’s external reserves went down by $3.1billion inMarch,2011 owing to increased foreign exchange sales by the Central Bank of Nigeria (CBN) to meet speculative demand for the greenback.

External reserves declined to $33.2 billion at the end of March after it rose to $36.4 billion by mid March, indicating a drop by $3.1billion.

For the month of March, the monetary authority spent about $3.4billion to defend the Naira that was under strong pressure of depreciation. Traders made a request for $4.1billion during the month.

The CBN sold a lower $1.7billion to traders at its official auction in February and $2billion the previous month.

Dealer banks raised their request for dollar from March 14 to over $400million per auction at the Central Bank of Nigeria (CBN) moderated Wholesale Dutch Auction System (WDAS) and further jerked up the demand in excess of $500million from March 23 auction. That was against the $340million to $370million requests during the first two weeks of March.

The CBN, which raised its forex supply in defence of the value of the Naira, however, met the market demand only on March 28, where $586million was sold by the regulator- the same amount that was requested by the 24 banks that participated at the auction.

Nigeria’s foreign reserves, which peaked at $62.24 billion in mid-May 2008, have depreciated by over 43 percent since then, closing today at $33.2 billion.

The CBN had at the end of its Monetary Policy Committee (MPC) meeting in March noted the re-emergence of demand pressures in the foreign exchange markets.

The total supply to the whole sale Dutch auction system (WDAS) segment by the CBN amounted to $5.145 billion from January through March 16, 2011, while demand stood at $6.815 billion during the same period.

The committee had expressed concern that, of the amount supplied, $1.34 billion was spent on importing refined petroleum products alone, which has adverse implications both for the reserves position and government finances as a result of the huge subsidy implications.

“The WDAS segment of the foreign exchange market, however, remained relatively stable. The Naira/Dollar exchange rate opened on February 1, 2011 at N151.85/$ and closed at N152.52/$ on March 17, 2011, representing a slight depreciation of 0.44 per cent (or 67 kobo).

“However, the premium between the rates at the WDAS and other segments of the market widened towards the end of the review period, reflecting a sharper depreciation in non-WDAS segments of the foreign exchange market. The Committee, however, observed that given strong oil sector fundamentals, this trend is likely to be temporary. The Committee urged the CBN to continue to pursue the strategy of maintaining exchange rate stability to contain inflation,” CBN had further stated.