FX: Central Bank Sells $148m to Banks to Defend Naira
The Central Bank of Nigeria (CBN) sold $148 million to authorised local deposit money banks to boost foreign currency liquidity and defend the naira.
Due to short supply of foreign currency, especially the US dollar, the Apex Bank conducted FX auctions last week to boost liquidity in the official market.
The US dollar auction reversed trend in the currency market last week. The naira exchange rate had hit ‘fear index’, a level which often trigger the FX intervention in the market.
Separate investment banking firms said in their reports that FX was auctioned at N1600 to authorised deposit money banks three times to alter exchange rate direction positively.
Spot data from FMDQ platform showed the naira appreciated by 5bps to N1,600 per US dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on the back increase FX liquidity.
A slew of financial analysts however maintained that the size of the auction remained unimpressive, citing sustained US dollar inflows into the foreign reserves.
“Naira has been falling while government focus to boost external reserves is a contradiction of the monetary authority’s primary function,” experts told MarketForces Africa.
FX spot data revealed that the exchange rate ended the week at exactly the same rate the CBN sold US dollars to banks.
Data from the Apex Bank portal showed that FX reserves showed that the gross reserves level grew by US$302.83 million to USD39.30 billion.
Activity or total turnover at the Nigerian autonomous FX market decreased by 33.8% to US$1.14 billion on Thursday, with trades consummated within the N1, 581.16 – N1,696.00 band, Cordros Capital Limited said in a note.
In the forwards market, the naira rates increased across one-month and three month contracts.
Analysts said the 1-month FX forward contract appreciated by +1.2% to N1,679.55 while 3-month contracts gained +0.9% to N1,754.42 per US dollar.
However, forward FX contracts for six and 12 months depreciated.
Cordros Capital Limited said in its report that the 6-month FX forward contract dipped by -0.2% to N1,867.42 and the 1-year contract depreciated by -0.9% to N2,085.58.
Though the CBN has continued to intermittently support the market, continuous currency depreciation points to a demand-supply imbalance.
“In our view, this is likely to remain the case over the short term until there are sufficient inflows in the market to support the CBN’s interventions,” Cordros Capital Limited said.
In its market update, AIICO Capital Limited told investors that the interbank NAFEM market traded between $/1,585.43 and $/₦1,697.
Foreign reserves has recorded positive momentum for eight consecutive weeks of accretion, partly due to FX purchases from Foreign Portfolio Investors (FPIs), Cordros Capital Limited said in a note.
Total turnover at the Nigerian autonomous forex market waned, down by 33.1% to USD1.22 billion on Thursday, investment firms said in separate reports.
Analysts said trades were consummated within the N1,581.16 – N1,696.00 band during the period as the naira continues to fall on the back of weak FX liquidity.
The exchange rate worsened further in the parallel market as demand and supply imbalances extended through the week in the currency market.
Demand continues to overshadow the volume of foreign currency available in the black market, and this shifted the exchange rate above N1,730 per US dollar. #FX: Central Bank Sells $148m to Banks to Defend Naira
