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The Central Bank of Nigeria (CBN) has conducted a significant forex auction, dispensing $876.26 million to end users through bids submitted by 26 commercial banks. This move aims to bolster the struggling naira.
The auction, held on August 6, 2024, led to a notable appreciation of the naira against the U.S. dollar, with the exchange rate improving to N1,596.52/$ from N1,601/$ the previous day. This intervention seeks to enhance forex liquidity, reduce demand pressure, and support accurate price discovery in line with the CBN’s objectives.
According to a statement from the CBN posted on Wednesday and signed by Omolara Omofunde Duke, Director of the Financial Markets Department, the auction was a strategic step to manage forex market volatility and improve currency stability.
The CBN received bids totaling $1.18 billion from 32 authorized dealers. Of these, $876.26 million in bids from 26 banks were accepted, while $313.69 million from six banks were rejected. The CBN set a cut-off rate of N1,495/$ for the Retail Dutch Auction.
The statement detailed that all end-user accounts will be credited with the naira equivalent of their approved bids by Wednesday, August 7, 2024, with settlement for successful bids scheduled for Thursday, August 8, 2024.
The disqualified bids included those submitted after the cut-off time of 3:00 pm and those with incomplete or incorrect documentation. The CBN emphasized that all qualified bids and the total submitted amounts will be published on its website to ensure transparency.
This auction is part of the CBN’s broader strategy to address the escalating unmet demand for foreign exchange, which has exerted pressure on the naira’s exchange rate. The CBN has also announced plans to implement a Retail Dutch Auction System to stabilize the currency and mitigate volatility.
Charles Sanni, CEO of Cowry Treasurers Limited, commented that while the auction will likely strengthen the naira in the short term, it may not be sustainable given the CBN’s limited foreign reserves. He noted that without supportive fiscal policies, the improvement might be temporary.
Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, praised the intervention, highlighting its potential to stabilize the forex market and bolster investor confidence. He suggested that continuous interventions may be necessary to manage currency volatility effectively.
Following the auction, the naira appreciated by 0.3% to N1,596.52/$, with intra-day fluctuations ranging from N1,520 to N1,628. The total dollar supply in the market increased to $93.92 million from $61.90 million recorded the previous day.
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