CBN Auctions FX 5 Times to Boost US Dollar Liqudity
The foreign currency scarcity pressure caused the Central Bank of Nigeria (CBN) to intervene in the forex market five times in response to negative exchange rate movements. Overall, the apex bank injected $33 million to boost FX liquidity in the market.
The CBN decision to sell the US dollar was not unconnected to the sustained decline in the value of the naira versus the US dollar and other currencies in the forex market. Even with the FX sales, the naira remained depressed as demand for foreign currency still outweighed the volume of US dollars available.
The apex bank reiterated its decision to stick to its willing buyer, willing seller fx policy following criticism that the monetary authority used Nigeria’s external reserves to defend the naira in April.
Reversing its position, the monetary authority sold the US dollar to help keep the exchange rate steady ahead of its payment obligation on its maturing non-deliverable forwards in the financial market last week.
Analysts noted that the apex bank market intervention was supported by improved inflows from foreign portfolio investors following attractive rates on OMO bill sales.
The apex bank’s rapid response intervention came after it successfully stemmed pressures that would have emanated in the currency market following $1.3 billion in non-deliverable forwards that matured in the latter part of May, 2024.
A run on the naira exchange rate was stepped down with open market operation (OMO bills) sales on Monday. The CBN floated its eighth OMO auction of the year, offering instruments worth N500.00 billion.
The amount was split into N75.00 billion for the 90-day bills, N75.00 billion for the 174-day bill, and N350.00 billion for the 363-day bill – to participants, traders said in their separate reports. Cordros Capital Limited said investors’ focus was largely on the 1-year bill amid zero interest in the 90-day bill
“The CBN’s OMO issuances after the USD1.30 billion non-deliverable forwards matured on 29 May forestalled demand pressure that could have resulted in the weakening of the naira”, Cordros Capital Limited said in its market note.
Data from CBN website showed that Nigeria’s FX reserves paused its five-week growth trend as the gross reserve level weakened by USD44.00 million to USD32.69 billion.
Elsewhere, the naira appreciated to a month high of N1,173 on 28 May before closing the week at N1,485.99 at the Nigerian Autonomous Foreign Exchange Market (NAFEM). Naira Rises by 19% as Forex Market Pressures Ease
According to Cordros Capital note, the CBN intervened in the market five times over the week, with total sales of USD338 million within the range of N1,030 and N1,400.00 per US dollar #CBN Auctions FX 5 Times to Boost US Dollar Liqudity
