A welcome recovery in reserves

Proshare

Friday, August 07, 2015 09:14AM / FBN Capital Research  

Data from the CBN show that official reserves rose by US$2.5bn in July to US$31.5bn on a 30-day moving average basis.

This increase can be attributed in part to the CBN’s administrative measures, notably the circular dated 23 June which ruled that 41 imported goods were no longer eligible for fx from either the interbank market or the bureaux de change.


We have heard some well-informed estimates that imports of the listed goods had accounted for 20% of fx utilization: this would amount to about US$900m per month on the basis of the CBN’s figure for utilization (for goods and services) for Q1 2015.

We clearly have to look elsewhere for additional explanations for the pick-up in reserves in July.


We assume there has been an easing in import demand due to the squeezing of real incomes. Further, the NNPC is said to have started to transfer its fx reserves from the commercial banks to the CBN.

This brings us to the untested theory that the plugging of fx leakages has begun. This could also explain why the FAAC distribution of June revenues was higher than May’s when oil prices would have suggested the opposite.

Banks have started to reject dollar deposits in cash which should feed into reduced fx demand for imports and therefore reserves accumulation.



Official reserves include the balance on the excess crude account. The latest figure in the public domain (from the permanent secretary in the finance ministry at the time of the FAAC announcement last month) is US$2.2bn.

The latest data (from end-March) put the CBN’s share of official reserves at 85% of the total.

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