A rare increase in reserves

CBN data show that gross official reserves picked up by US$820m in November on a 30-day moving average basis to US$24.8bn. The monthly average movement has been an outflow of US$430m over the past 12 months. This first sizeable increase since July 2015, when the fx holdings of public bodies were transferred to the CBN, is apparently due to the disbursement of US$600m by the African Development Bank (AfDB) in the form of budget support. We do not see another inflow on this scale until Q1 2017, when the sovereign Eurobond is due to be launched. 
The reserves may appear comfortable according to one traditional measure:  on the basis of the balance of payments for the 12 months through to end-June, they provided cover for 6.6 months’ merchandise imports and for 4.6 months when we add services. 

The cushion is not wholly the CBN’s. Its latest figures (from June) show that it was the owner of 73% of reserves. 

Given the oil price and allowing for the OPEC accord in Vienna last week, and seeing still robust import demand, the CBN is playing cautiously. Since August it has sold just US$1.5m per day (to one bank according to a rota). In addition it has honoured four forward contracts since the devaluation/liberalization in June, and held a special fx auction for petroleum marketers this week.


A rare increase in reserves Sources: CBN; FBNQuest Research

In June we were told that a floating exchange-rate regime was imminent. We urge patience, however, since we cannot currently identify the large autonomous fx inflows which will prove the short-term, game-changer. We are content with our favoured piecemeal solution in which a series of transactions over time supplies the trigger (Eurobond, balance under the AfDB facility, World Bank support and oil-related transactions).

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