The Central Bank Of Nigeria(CBN) will be selling dollar at a retail auction starting today, in hopes to cease naira downward. The apex bank has now obtained a list of all outstanding foreign exchange demands made by end users, After informing banks via a circular that it would no longer be holding wholesale auctions.
According to sources, CBN is perplexed by the naira’s sharp decline despite its increased involvement in the foreign exchange market, the bank bought less than $20 million from deposit money institutions in July, and sold $369 million, according to FMDQ data, which result in changed of course in retail auction because its intervention did not result in the much needed relief for the naira.
A low record was noted last month as the value of the naira fell below N1,600. The naira finished at N1601 per US dollar on Tuesday and it decreased by 70% last year.
According to several merchants, the bank is also trying to use the retail auction to scoop up more naira liquidity.
Head of financial institutions ratings at Agusto Consulting, Ayokunle Olubunmi, explained that the CBN’s change of course is to meet the burgeoning forex demand and stabilise the currency. “The CBN has been attempting to decrease activity on the FX window, but in actuality, the CBN will serve as the primary provider. This specific window is being created to make sure the naira stabilizes.
As stated by Olubunmi, the CBN’s move is a resuscitation of a previously in use system intended to guarantee that legal forex transactions are fulfilled.
He also emphasized that in order to relieve pressure on the naira, the CBN has taken several steps, including selling dollars to Bureau De Change (BDC) operators. These actions are as a result of the increased demand for dollars. He stated that the action is essential to stop the depreciation of the naira. Also stating that CBN will still be the main supplier of forex and will reintroduce retail Dutch auction which will in other hand support the naira and stem devaluation.
According to a circular issued by the CBN, the upcoming sale is in response to the “growing unmet foreign exchange demand,” which has exacerbated pressure on the naira’s exchange rate.
Overtime, the central bank has supplied the market with dollars through the use of both retail and wholesale currency auctions. As the wholesale auction supplies banks with dollars, the retail auction serves costumers directly.
