CBN records first forex equilibrium

For the first time since the Central Bank of Nigeria re-introduced the Wholesale Dutch Auction System last month, it fully met all its dollar demands at foreign exchange market on Tuesday.

The industry regulator sold $357.75 million, clearing all demand by the end-users for the first time.

The move by the Central Bank to increase its supply and meet all its forex demand at the auction market led to the Naira appreciating to 150.01 to $1 from ₦150.31.

Finance experts said that the naira also gained value on the interbank trading at ₦153.90 to $1 against ₦154.60 on Monday, due to additional forex inflow from oil majors, which increased confidence in the ability of the CBN to meet dollar demand.

Oil companies pump in dollars. According to Reuters, two energy firms, ExxonMobil and Nigerian Liquefied Natural Gas (NLNG) sold about $60 million to selected banks on Tuesday, thereby raising dollar liquidity in the forex market.

Reuters further stated that the CBN in its bid to meet demand, sold about $876 million last week, draining the system of over ₦130 billion, while about ₦59 billion was repaid by banks that borrowed from the central bank's expanded discount window.

"The central bank sold a large amount of dollars in the week to support the naira, which had come under pressure because the bank, the main supplier of forex in Nigeria, was short supplying dollars to the market at its recent bi-weekly forex auctions," Reuters said.

Interbank rates

Last week, the CBN expressed concern over the widening gap between the Whole Dutch Auction System (WDAS) and the interbank exchange rates, in its bid to address the depreciating value of the Naira.

A circular released by the regulatory Bank, attributed the problem largely to authorised dealers who purchase funds at the WDAS window and sell at the inter-bank market.

The circular dated August 3, and titled, ‘Non-transferability of funds procured from the Whole Dutch Auction System (WDAS) among authorised dealers' said, "as a result of this activity, the end-users end up paying a high price for foreign exchange due to the arbitrage activities of the banks."

At the Monetary Policy Committee (MPC) meeting held on July 7, the CBN said it would disband the controls recently introduced in the Foreign Exchange Market, to stimulate and stabilise activities in the system.

However, the Naira still remains weak, with finance experts predicting that the new policies in the Forex market are not likely to lead to an appreciation of the naira, at least, not in the nearest future.

But they believe that the cash scarcity could continue in the week ahead, driving the rates higher unless there is a major naira cash inflow from budgetary allocations to government agencies or significant sales from oil firms.