Another decline in Federal Reserves

Proshare

Monday, December 07, 2015 8:55 AM /FBNQuest Research              

Data from the CBN show that official reserves decreased by US$276m in November to US$29.9bn on a 30-day moving average basis. This compares with a loss of US$150m the previous month. The fall which was greater than that of the previous month was due to the rise in domestic demand for dollars.

It also appears that there was a spill-over from the JP Morgan effect which led to the exit of most investors; the phased removal of Nigeria from its GBI-EM indices of local currency government bonds was completed in October.

Considering the widening of the fx rate between the official and parallel market, there is still a lot of pressure on reserves. The naira to US dollar exchange rate is currently trading at N248 on the parallel market.

Apart from the administrative measure by the CBN to exclude access of fx for certain items from the official window, the CBN recently cut its dollar supply to BDC operators. The supply frequency has also been reduced to once a week from bi-weekly.


According to the
CBN governor, Godwin Emefiele, since the introduction of the Bank Verification Number as a requirement for forex transactions, BDC operators have reduced by half. This has led to savings of close to US$100m per week.



Nigeria’s total external reserves are sufficient to provide 5.9 months’ cover for merchandise imports at 2014 levels.

The spot price of UK Brent ranged between US$41/b and US$48/b in November. Last week, OPEC failed to reach a decision on a new (lower) production quota. The oil cartel continues to produce over 30 million barrels per day and as such the supply glut remains. This is likely to lead to more pressure on fx and reserves going forward.

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1.       Marked decline in reserves in September – Oct 08, 2015

2.      Reserves stable in August – Sep 03, 2015

3.      Unexplained rise in the FAAC distribution – Aug 05, 2015

4.      Reports of a recovery in reserves – Jul 09, 2015

5.      Another decline in reserves – Jul 07, 2015

6.      Welcome stability in reserves – Jun 04, 2015

7.      Further decline in FAAC distributions – May 19, 2015

8.     A modest decline in reserves – May 07, 2015

9.      A further sharp decline in reserves – May 05, 2015

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