Reserves holding up despite fx interventions

Gross official reserves increased by US$550m in July to US$30.8bn. Since the recent low at end-October there has been an accumulation of US$6.9bn. The more telling figure is the increase of US$0.5bn since end-March, when the CBN stepped up its fx interventions under its multiple currency practices (MCP). When we allow for the sharp fall in imports in the recession, the buffer is now comfortable. By way of warning, we should stress that the figures provided by the CBN are gross and mask the swap transactions it has entered into with banks.

The pick-up in oil production has been an obvious positive for accumulation. Officials are encouraging the view that it is back at, or close to the 2.0 mbpd level. Further, the FGN may well return to the Eurobond market this year. The heavily-oversubscribed Iraqi sovereign issue last week without US guarantees was a reminder of the strength of the market.

The CBN will also be encouraged by the early signals from the investors’ and exporters’ window (NAFEX). Turnover from its launch in late April through to 21 July totals US$4.9bn. If this market was to take off as a result, for example, of GEM funds taking the plunge, we would be approaching the required critical mass and would have to revise our expectations of MCP.

Given this cushion of reserves and the evidence that core sectors such as manufacturing are benefiting from the regular fx interventions, we no longer think that the CBN will be revising its fx policy this year.

When we compare this data with the CBN’s series on its net fx flows through to May (Good Morning Nigeria, 02 August 2017), happily we find the same pronounced movements: healthy accumulation in December, January and February, and a marked decline in May.

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