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In a major move to strengthen the struggling naira, the Central Bank of Nigeria (CBN) has auctioned $876.26 million to end users, with 26 commercial banks participating in the bid. The auction, held on August 6, 2024, aims to enhance foreign exchange liquidity, ease demand pressures, and support price discovery.
The immediate impact was noticeable in the forex market on Wednesday, as the naira gained value against the US dollar, trading at N1,596.52/$ compared to N1,601/$ the previous day.
Omolara Omofunde Duke, Director of the Financial Markets Department at the CBN, provided details on the auction. “The Central Bank of Nigeria conducted the sale of foreign exchange through a Retail Dutch Auction System to alleviate demand pressure and facilitate price discovery on August 6, 2024,” the statement said.
Out of $1.18 billion in total bids received from 32 authorized dealer banks, $876.26 million from 26 banks were successful, while $313.69 million from six banks were disqualified. The CBN set a cut-off rate of N1495/$ for the auction.
The naira has recently fluctuated between N1,450 and N1,600. The CBN’s intervention is part of a broader strategy to stabilize the naira amid rising foreign exchange demand, which has been intensified by seasonal factors and import dependency.
Charles Sanni, CEO of Cowry Treasurers Limited, commented on the auction, stating that while the intervention would enhance liquidity and support the naira, its long-term sustainability could be challenged by the country’s low foreign reserves. “The key issue is sustainability, given our reserves. This auction system may not be sustainable in the long run,” Sanni remarked.
Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, praised the intervention, highlighting its importance for market stability. “Volatility in the forex market is detrimental to the economy, business operations, and investor confidence. The CBN’s intervention is crucial for maintaining stability,” Yusuf noted.
The auction process required authorized dealer banks to submit detailed templates outlining all outstanding trade-backed unmet FX demands of their customers. These submissions were password-protected and reviewed by the CBN. To ensure transparency, the CBN plans to publish all submitted and qualified bids.
The FMDQ Securities Exchange Limited reported a slight naira appreciation of 0.3% on Wednesday, with trading ranges between an intra-day high of N1,628 and a low of N1,520 to the dollar. The supply of dollars increased to $93.92 million from $61.90 million the previous day.
This auction represents a significant effort by the CBN to stabilize the naira and manage forex market pressures, reflecting the central bank’s ongoing commitment to supporting Nigeria’s economic stability.
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