The Central Bank of Nigeria (CBN) hopes to stem the naira’s downward spiral by selling dollars at a retail auction today, Wednesday 7th August 2024.
After informing banks via a circular that it would no longer be holding wholesale auctions for banks, the apex bank has now obtained a list of all outstanding foreign exchange demands made by end users.
The CBN, according to sources, is perplexed by the naira’s sharp decline despite its expanded involvement in the foreign exchange market.
The bank bought less than $20 million from deposit money institutions in July, but sold $369 million, according to FMDQ data.
The CBN changed course and held a retail auction because its intervention did not result in the much-needed respite for the naira.
Last month, the value of the naira fell below N1,600, a record low. The naira finished at N1601 per US dollar on Tuesday. In the last year, it has decreased by 70%.
According to several merchants, the bank is also trying to use the retail auction to scoop up more naira liquidity.
The goal of the CBN’s new strategy, according to Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting, is to stabilize the currency and satisfy the growing demand for foreign exchange.
According to Olubunmi, the CBN’s move is a resuscitation of a previously in-use system intended to guarantee that legal forex transactions are fulfilled.
He stated, “The CBN has been attempting to decrease activity on the FX window, but in actuality, the CBN will serve as the primary provider. This specific window is being created to make sure the naira stabilizes.”
He highlighted that in order to relieve pressure on the naira, the CBN has taken several steps, including selling dollars to Bureau De Change (BDC) operators. These actions are a result of the increased demand for dollars. He stated that the action is essential to stop the depreciation of the naira.
Olubunmi reaffirmed, “The CBN will continue to be the primary source of forex. The naira and stem devaluation will be supported by reintroducing the retail Dutch auction.”
The forthcoming auction is in reaction to the “growing unmet foreign exchange demand,” which has increased pressure on the value of the naira, according to a circular released by the CBN.
The naira is also under a lot of strain because of the seasonal demand from importers and summer travelers.
In the past, the central bank has supplied the market with dollars through the use of both retail and wholesale currency auctions. While the wholesale auction supplies banks with money, the retail auction deals directly with consumers.
