Culled–Proshare
October 6, 2017/ FBNQuest Research
Gross official reserves increased by US$670m in September to US$32.5bn. Since the recent low at end-October there has been an accumulation of US$8.5bn. The more telling figure is the increase of US$2.2bn 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 caution, we should stress that the figures provided by the CBN are gross and mask the swap transactions it has entered into with local 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 plans to raise US$2.5bn by November from additional Eurobond sales, for which the market has a healthy appetite (Good Morning Nigeria, 05 October 2017).
The CBN will also be boosted by the positive signals from the investors’ and exporters’ window (NAFEX). Turnover from its launch in late April through to 04 October totals US$14.5bn.
The latest boost has been provided by the return of the offshore investor to local debt markets. We understand that the CBN’s fx supply to NAFEX is now negligible and we know that it has reduced its supply to other windows such as that for the retail segment for invisibles.
These various positive developments tell us that gross reserves are heading towards the US$40bn mark, which level they last touched in February 2014 (before the most recent slide in the crude oil price).
Given this cushion of reserves, we do not see a major change to the CBN’s MCP either this year or next. The current arrangement suits the authorities, and they are no real pressure to change tack.
