The CBN has reported an increase in official reserves in March of $1.2billon, to a new total of $48.6billion. The cover has risen in each of the past eight months (other than December), and by $12.1billion since the end of July 2012 when the MPC hiked the cash reserve requirement for banks by 400bps.
The increase in March is striking since the presidency authorised the withdrawal of $1billion from the excess crude account (ECA) and the CBN intervened directly in the market to underpin the exchange rate.
This direct intervention was influenced by the slowdown in offshore flows to the interbank market to buy naira-denominated debt. Demand therefore picked up at the bi-weekly auctions, where CBN sales rose from a total of $1.15billion in February to $1.67billion.
Provided that the oil price obliges, in our view the CBN will be able to hold the line on the naira exchange rate this year.
Reserves at end-March provided cover for more than nine months’ imports of goods, and close to seven months when we include services.
Our chart shows the weakness of the single correlation between reserves and the oil price. In 2010, for example, the price picked up yet reserves declined by $10billion because the ECA was drained ahead of elections. In 2012 the removal of the fuel subsidy contributed to the rise in reserves.