Another decline in reserves


Tuesday, July 07, 2015 9:09AM / FBN Capital Research   

Data from the CBN show that official reserves decreased by US$600m in June to US$29.0bn. Since the beginning of the slide in the oil price one year ago, the cover provided by reserves has fallen by US$8.5bn.



The fall would have been greater, had it not been for the administrative measures and market ruses employed by the authorities. Perhaps the boldest step was the suspension of the official twice-weekly fx auctions in February, leading to the de facto devaluation of the naira exchange rate.

The latest measure has been a CBN circular of 23 June, amended on 01 July, stipulating that imports of 40 products are no longer eligible for fx in the interbank market or the bureaux de change. We do not think that this will be the last measure of this type.

Far from showing signs of indecision, the CBN is stridently defending its policies. A press release in response to an article last week in the international media dismissed a “few misguided interests in the market” (its critics).

We feel, however, that by the end of this year the CBN will have pushed through a third devaluation since last November. Against the background of continuing reserves depletion and in the realization that the oil price is unlikely to come to the rescue of policymakers, we see a rate of N215 per US dollar.


Nigeria’s total external reserves are sufficient to provide 6.1 months’ cover for merchandise imports at 2014 levels.

Reserves include the excess crude account. Reports suggest that the FGN has authorised the drawdown of US$1.7bn from the account to clear state governments’ salary arrears.

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