The Central Bank of Nigeria (CBN) sold $60 million to approved dealer deposit money banks in an unusual FX auction held last week to prevent the currency rate from crossing the red line.
The Nigerian FX market experienced increased dollar liquidity in the interbank NAFEM market, despite a continuing US dollar shortfall and growing demand for foreign exchange. AIICO Capital Limited said that the central bank intervened once, selling around $60 million at ₦1,540.
Data from the FMDQ platform indicated that the volume of US dollars on the supply side rose. The spike reduced forex supplies, as the official market exchange rate had already reached N1,660.
Overall, the naira appreciated by 2.47% week-on-week, closing at ₦1,600.78 in the NAFEM window after banks released N92.4 billion to buy $60 million from CBN.
On policy side, the CBN appears to have dumped its re-introduced retail Dutch Auction System aimed to remove excessive intermediation in the forex sales to end users. Unfortunately, demand which printed at $1.1 billion at the first Dutch auction call overwhelmed the authority.
“FX sales of that magnitude can crash the external reserves”, a Broadstreet financial expert told MarketForces Africa, adding that the CBN may not be opened to continue with such huge bids.
Post Dutch FX auction sales in August, the authority’s US dollar sales to authorised dealer banks have been minimal, with CBN selling $544 million to banks in Sept. In Oct, FX sales to banks has been on decline. In the past week, the CBN has sold $110 million to boost liquidity level in the foreign currency market.
