CBN Plans Dollar Auction to Airlines, Importers

The Central Bank of Nigeria is planning to auction an undisclosed amount of dollars through book building to settle a backlog of demand for airlines, fuel and raw material imports.

Traders said the CBN had asked lenders to bid for hard currency for specific sectors in efforts to improve dollar liquidity, Reuters reported.

It said a cut-off rate at the auction would be applied at the marginal rate and that obligations due on fuel imports must had matured before January 31 to qualify for the intervention.

The CBN has been intervening aggressively since February to try to narrow the spread between the official and black market rates and has sold more than $4bn.

In theory, greater liquidity should lead rates to converge.

The local currency was quoted at 381.71 per dollar at the investor window, according to the market regulator FMDQ OTC Securities Exchange.

It fetched 305.60 in the interbank window and 390 on the black market.

Meanwhile, the naira has appreciated against the United States dollar by 25 per cent on the parallel market in the past 10 weeks, a new report by the Financial Derivatives Company Limited has shown.

The naira fell to 520/dollar on February 20 shortly after which the Central Bank of Nigeria introduced a new foreign exchange policy measure. But the local unit closed at 390/dollar on Tuesday.

The report read in part, “The naira has appreciated by 25 per cent on the parallel market in 10 weeks, but economic activity is lagging the currency gains. Skeptical Nigerians are wondering whether this naira momentum is sustainable. This is because a strong currency is not necessarily synonymous with a strong economy.

Highlighting other economic indices, the report said, “The good news is that inflation is sliding and First Bank of Nigeria’s Purchasing Managers Index, a measure of manufacturers’ confidence spiked by six per cent to 58.9. More importantly, oil production is reported to be two million barrel per day, a 32-month high.

“These indicators confirm the notion that the long anticipated economic recovery may have started ahead of analysts’ expectation. This recovery however is vulnerable to exogenous and domestic political shocks.”

The report linked the naira appreciation to four factors. These were: the sharp increase in oil revenue estimated at a monthly value of $2.5bn, a shift in exchange rate policy, a 16.9 per cent increase in forex supplied in Q1 2016, and the recent opening of a new investors/exporters FX window by the CBN.

According to the FDC document, the CBN is expected to reduce its frequency of intervention in the coming weeks. It also described the forex market as “imperfect” with a price discriminating monopoly.

It stated that the CBN had sold $3.6bn since February 20 when it introduced the forex policy.

Economic and financial experts are, however, divided over whether the CBN will sustain its intervention in the forex market or not.

The CBN has said it will continue to intervene in the market to meet the needs of genuine end-users and bolster the naira.

It said with oil price hovering above $50/barrel and external reserves still above $30bn, the regulator would continue to intervene in the market.

The report stated that the CBN might end the current multiple exchange rate regime by putting the Real and Effective Exchange Rate at something between 360/dollar and 375/dollar.


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