CBN Auctions $876.26 Million in Bid to Bolster Ailing Naira -

In a significant intervention to strengthen the beleaguered naira, the Central Bank of Nigeria (CBN) has auctioned $876.26 million to end users, with bids submitted by 26 commercial banks. The auction, conducted on August 6, 2024, aims to boost foreign exchange liquidity, alleviate demand pressure, and support price discovery.

The policy’s immediate impact was evident in the foreign exchange market on Wednesday, as the naira appreciated against the US dollar, trading at N1,596.52/$ compared to N1,601/$ on Tuesday.

The CBN, in a statement signed by Omolara Omofunde Duke, Director of the Financial Markets Department, revealed the details of the auction. “The Central Bank of Nigeria undertook the sale of foreign exchange to end users through a Retail Dutch Auction System to reduce demand pressure in the FX market and promote price discovery on Tuesday, August 06, 2024,” the statement read.

A total of $1.18 billion in bids were received from 32 authorised dealer banks, with $876.26 million from 26 banks qualifying, while $313.69 million from six banks were disqualified. The bank approved a cut-off rate of N1495/$ for the auction.

The naira has fluctuated between N1,450 and N1,600 in recent months. The CBN’s intervention is part of a broader strategy to stabilise the naira amid growing unmet foreign exchange demand exacerbated by seasonal pressures and import-dependent economic activities.

Commenting on the development, Charles Sanni, CEO of Cowry Treasurers Limited, noted that while the intervention would improve liquidity and strengthen the naira, it may not be sustainable due to the country’s low foreign reserves. “The critical issue is sustainability, given our reserves. This auction system doesn’t look sustainable in the long term,” Sanni stated.

Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, praised the intervention, emphasising the need for stability in the foreign exchange market. “Volatility is very bad for the economy, for business and investor confidence. The CBN’s intervention is essential to ensure stability,” Yusuf remarked.

The auction process involved authorised dealer banks submitting detailed templates of all outstanding trade-backed unmet FX demands of their customers. These templates were password-protected and submitted to the CBN, which then collated and reviewed the bids. The CBN has committed to publishing all submitted and qualified bids to ensure transparency.

The CBN’s statement also highlighted the disqualification reasons for some bids, including late submissions and non-compliance with bid templates.

Wednesday’s market data from the FMDQ Securities Exchange Limited showed a marginal naira appreciation of 0.3 per cent, trading at an intra-day high of N1,628 and a low of N1,520 to the dollar. Dollar supply between willing sellers and buyers increased to $93.92 million from $61.90 million recorded on Tuesday.

This intervention marks a critical step by the CBN to stabilise the naira and manage the foreign exchange market pressures, reflecting the apex bank’s ongoing efforts to support economic stability in Nigeria.