Naira Devaluation: CBN Abandons Currency Auctions

The Central Bank of Nigeria has jettisoned its weekly foreign-exchange auctions, a move which sees the apex bank effectively devaluing the naira for the second time in just 3 months.

The weekly foreign exchange auctions were a key part of its currency-management system.

The CBN, in a statement on its website on Wednesday, said that its attempts at supporting the naira through dollar sales at the auctions was draining foreign-exchange reserves without having any benefits to the economy, after the gap between market and auction rates for the currency widened to a record on Feb. 12.

The statement also said that demand for foreign currency must now go through the interbank market, though the CBN will continue to intervene to meet legitimate demand.

The naira gained 1.4 percent to 196.77 per dollar by 4:28 p.m. in Lagos, rallying for a third day after falling to a record low on Feb. 12.

The central bank, which devalued the naira in November, has attempted to stem the currency’s decline by introducing measures to dry up foreign-exchange trading. The naira has slumped 18 percent in the past six months amid a slide in the price of oil, which accounts for 90 percent of Nigeria’s export earnings and 70 percent of government revenue.

The regulator attempts at shoring up the naira has depleted reserves to their lowest in more than three years in its bid to defend the currency.

Nigeria’s foreign exchange reserves stood at $32.7 billion as of Feb. 16, down 22 percent on a year ago. Nigerian stocks have dropped 23 percent this year in dollar terms, the most among 93 primary equity indexes after Ukraine.