CBN data show that gross official reserves picked up by US$1.1bn in December on a 30-day moving average basis to US$25.8bn. The monthly average movement has been an outflow of US$270m over the past 12 months. We can explain the increase the previous month on the basis of the disbursement of US$600m by the African Development Bank (AfDB) in the form of budget support. This latest rise, and the increase of US$300m in one day on a moving average basis, constitute a greater challenge beyond the US$10/b surge in the oil price since the new OPEC accord.
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 6.8 months’ merchandise imports and for 4.9 months when we add services.
However, the CBN remains cautious. It has been selling just US$1.5m per day (to one bank in line with a rota) and looking to meet import demand with its periodic forward contracts since the devaluation/liberalization in June.
We do not see a floating exchange-rate regime anytime soon. The CBN and monetary policy committee are not in a rush to make the change, and the political leadership is not convinced of its merits. Offshore portfolio investors and other market participants will be disappointed. Yet we cannot identify the large autonomous fx inflows which will prove the short-term, game-changer. We stick, therefore, with our piecemeal solution in which a series of transactions over time supplies the trigger (Eurobond, balance under the AfDB facility, World Bank and Chinese support, and oil-related transactions).
The figure for gross reserves includes the balance in the excess crude account, for which the latest figure in the public domain is US$2.7bn.
