The decent buffer of reserves
Gross official reserves declined by just US$40m in June to US$31.3bn. Since end-October there has been an accumulation of US$6.3bn although the past two months have brought a combined decrease of US$580m. In the context of the sharp fall in imports in the recession, and allowing for the CBN’s steady fx interventions in its various windows since March, the buffer is now comfortable. By way of caveat, we should add that the figures provided by the CBN are gross and that the size of the swap transactions it has entered into with banks is unknown.
The reopening of the Forcados oil export pipeline adds about 250,000 b/d to production, and provides accretion to reserves through the NNPC’s stake in the joint ventures.
Further, the monetary authorities will be encouraged by the early signals from the Investors’ and exporters’ window (NAFEX). Turnover (both sides of trades) since its launch in late April totals US$3.7bn. Supply is provided by the CBN, non-oil exporters and the offshore portfolio community. We are seeing the frontier and Africa-dedicated funds at the window. If the GEM funds were to take the plunge, we would be approaching the required critical mass and would likely have to revise our views about multiple currency practices.
If, however, the pick-up in momentum does not materialize and reserves were to fall steadily over several months, the CBN would scale back its interventions and rethink its fx policy.
Sources: CBN; FBNQuest Research
The data for reserves includes the balance in the excess crude account of US$2.3bn. It does not yet include, we assume, the US$300m proceeds of the recent maiden bond issue for the diaspora.