A modest decline in reserves

Proshare

Thursday, May 07, 2015 8:55 AM / FBN Capital Research

                                               

Data from the CBN show that official reserves decreased by just US$260m in April to US$29.6bn. This compares with an average decline of US$2.3bn in March and February, and can be linked in part to a change in strategy by the CBN since it scrapped the RDAS window in mid-February.

 

Demand for fx for qualifying transactions at the auctions has been pushed to the interbank market. The central bank tends to intervene on a daily basis and does not meet all bids. Indeed, the amount allocated can reportedly be as low as 5% of submitted bids by banks, and is made available directly to the end users.

                                                                 

A second factor which may have contributed to the sharply lower decline in reserves in April is the reduction in political risk following the successful completion of elections. This has led in turn to a decline in outflows by offshore portfolio investors.

Another factor is the recent inch-up in oil prices, which we estimate at 18% over the month of April from a starting point of US$54/b.

Official reserves include the balance on the excess crude account, for which the latest figure in the public domain (from the federal minister of state for finance at the time of the FAAC announcement last month) is US$2.7bn.

We also assume there has been an easing in import demand due to the slide in the naira exchange rate. That being said, Nigeria’s external reserves are sufficient to provide 5.8 months’ cover for merchandise imports and 4.2 months when services are included.

The latest data (from end-December) put the CBN’s share of official reserves at 81% of the total.

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