Data from the CBN show that gross official reserves declined by US$150m in July on a 30-day moving average basis to US$26.2bn. The monthly average movement has been an outflow of US$410m over the past 12 months. The slowdown in depletion in July can be attributed to lower CBN daily sales of fx, which have fallen below US$10m on occasions. The moving average basis reduces the immediate impact of the sale of US$700m by the CBN under a one-month forward contract opened on 20 June. It also entered into a two-month contract for US$1.22bn at the same time.
The CBN is the largest but not the sole owner of the reserves. Its share amounted to US$18.00 at end-May, equivalent to 68% of the total. The federation account and the FGN accounted for the balance.
Anecdotal evidence points to a fall in the waiting time for access to fx since the launch of the new system on 20 June. It may be, however, that demand rather than supply factors are responsible for the improvement.
The success of the new regime hinges upon the entry of sizeable autonomous flows to supplement the CBN’s. The FMDQ website shows open futures contracts on its OTC market of US$1.69bn out to July 2017. The offshore portfolio community has shown its hand although we suspect that Nigerian corporates have been much 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.
It appears that offshore investors are waiting for each other to make the first move of scale. We do expect the textbook correction but the interbank rate may first have to drift south of N340 per US dollar in coming weeks before we reach our destination.
