Friday, June 03, 2016 9:37AM /FBNQuest Research
Data from the CBN show that gross official reserves declined by US$700m in May on a 30-day moving average basis to US$26.4bn. The average has been an outflow of US$470m in the ten months since the one-off bonus of July 2015 when the CBN acquired the fx deposits of US$2.5bn of government departments and agencies.
The authorities have limited weekly fx sales at the CBN’s rate of N197 per US dollar to about US$200m yet are still struggling to contain the depletion in the face of strong, but easing import demand. Reserves at end-May provided merchandise import cover of 6.1 months (and 4.4 months when services are included).
The CBN estimated in January that its monthly supply of fx for sale had slumped to US$1bn. The spot price of Bonny Light has since recovered by 75% to around US$50/b while output has fallen by at least 500,000 b/d.
The CBN circular of June 2015 ruled that 41 import items were no longer eligible for fx at its rate. Last month, the NNPC set a new retail price ceiling for petrol of N145/litre and indicated that the marketers would not be able to buy fx at the CBN’s selling rate.
We await more colour on the proposed second fx window.
If the CBN rate is to be limited to “critical transactions”, then logically pressure on reserves from flows should ease. The success of the second window in unlocking additional fx supplies hinges upon the modalities to be announced. We would expect the CBN to err on the side of conservatism.