Continuing depletion of reserves

Data from the CBN show that gross official reserves declined by US$790m in August on a 30-day moving average basis to US$25.4bn. The monthly average movement has been an outflow of US$460m over the past 12 months. The moving average basis dilutes the immediate impact of the sale of US$1.22bn by the CBN under a two-month forward contract opened on 20 June. It also entered into a three-month contract for US$1.57bn on the same day (the launch of the new exchange-rate regime).
Commentary outside the market has made much of the reported sale by Citibank of US$270m on 29 August for the purchase of longer tenor NTBs by its offshore clients. One possibility is that the T-bills were bought through the CBN’s open market operations (OMOs).

This transaction has not triggered the re-entry of offshore investors in large numbers. A Europe-based international bank has been buying FGN long bonds steadily over the past two weeks. Market talk suggests that it may have bought the bonds with the proceeds of FGN debt maturities.

The success of the new regime hinges upon sizeable autonomous inflows to supplement the CBN’s. The FMDQ website shows open futures contracts of US$2.9bn through to August 2017. The portfolio community has shown its hand although Nigerian corporates have probably been the larger players.

There is no reason why the new system cannot be successful, with the CBN one of many players rather than the principal supplier. We urge patience.

Continuing depletion of reserves

The CBN is the largest but not the sole owner of the reserves. Its share amounted to US$19.4bn at end-June, representing 73% of the total. The balance belongs to the FGN and the federation account.

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