Marked decline in reserves in September


Thursday, October 08, 2015 09:10AM / FBN Capital Research   

Data from the CBN show that official reserves decreased by US$980m in September to US$30.3bn on a 30-day moving average basis.

This compares with a loss of just US$140m the previous month. September brought stage one in the removal of Nigeria’s weighting in the JP Morgan indices of local currency government debt in emerging markets.

The original weighting of 1.5% is reduced to zero at the end of this month. Such index funds invested in Nigeria before the JP Morgan announcement of 08 September were perhaps US$3bn.

We would be surprised by a marked spillover into the local equity market. The comparable benchmark index is the less challenging MSCI. Also, a high proportion of offshore players invested in the NSE are Africa dedicated funds (with or without South Africa).

The continuing softness of crude oil exports would have been an additional drag upon reserves.

The decrease would have been greater had global market conditions been as choppy as the China-related sell-off in August. We also suspect that the management of reserves has improved with the plugging of some leakages. The theory cannot, by definition, be properly tested but was likely a factor behind the US$2.5bn surge in reserves in July.

We do not see any weakening of the CBN’s resolve to avoid a third devaluation of the naira exchange rate in one year. We think, however, that the pressures will become too great and project an interbank rate of N215 at end-December.

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1.       Reserves stable in August – Sep 03, 2015

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

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

4.      Another decline in reserves – Jul 07, 2015

5.      Welcome stability in reserves – Jun 04, 2015

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

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

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


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