Gross official reserves declined by US$540m in May to US$31.3bn. This first monthly decline since October (see chart) has to be seen in the context of the acceleration in the CBN’s fx interventions through the several windows it operates, the latest being NAFEX for portfolio investors and exporters. The broader picture shows a rise of US$6.4bn since end-October, for which there are several plausible explanations: a disbursement by the African Development Bank, Eurobond sales of US$1.5bn, rising oil production, improved fx management and swap transactions.
The decline in May is not a cause for alarm against the broader trend. Additionally, we note the repair of the Forcados oil export pipeline after more than one year out of operation. This amounts to a sizeable increase in oil earnings.
Further, we see that the early indications from NAFEX are promising. Offshore portfolio investors are accessing the window (on both sides of the trade). At this point, we are seeing the frontier and Africa-dedicated funds at the window: the more widespread the participation, the less the CBN has to draw upon its reserves.
If, however, the decline in reserves was repeated over a few months, the CBN would scale back its interventions and rethink its fx policy.
Sources: CBN; FBNQuest Research
We could offer more insight if we had access to more information. The South African Reserve Bank, for example, publishes a breakdown of gross reserves by gold, SDR holdings and fx reserves. It then deducts foreign currency deposits and adds the forward position to give what it terms the international liquidity position.
