Central Bank sells $400m in auction sales

The Central Bank of Nigeria (CBN), yesterday, sold $400 million in its by-weekly Wholesale Dutch Auction System (WDAS).

This is the highest sale of foreign exchange at the official window since September 27 auction when $650 million was traded. The Central Bank has sold about $4.9 billion in the last two months in 18 auctions. Similarly, the foreign reserves dropped to $33.84 billion on Friday from $34.16 billion the previous day. Analysts forecast a surge in forex demand in the next few weeks due largely to the increased market reliance on CBN. Official data for the months of January-August 2010 indicate that the central bank supplied approximately 27.1 per cent of the dollar demand of $52 billion of inflows into Nigeria’s foreign exchange market with autonomous sources (oil companies, international institutions, and remittances) accounting for the rest. The naira sold at the official market at N149.01, while at the interbank it sold at 151.865, at the bureau de change at N152 and 153 at the parallel market.

Demand pressure

According to analysts at Afrinvest, an investment and financial services firm, the naira may “inch upwards this week as demand pressure increases towards the end of the year.” The firm in its weekly report however said sustained inflows from oil majors will likely stabilize the naira in the interbank market. The report noted that demand for forex increased last week when compared to a slowdown in the previous week. Although the CBN maintained its volume of supply, market demand of $548.7m outstripped the $450.0m offered. This demand pressure continued this week as $447.62 million was actually demand out of which the CBN was able to meet 89.36 per cent of demand.

A bureau de change operator on Broad Street in Lagos, Gali Kabiru, said the increase in dollar supply may be due to anticipation of increased demand. “People expect that after next week, the foreign exchange market may be closed until next year so many people are making provisions for such occurrence,” he said, adding that interbank rate at N153 makes parallel market rate. He said the demand may increase for the next few auctions before the closure.

Sustain dollar rate

Regional Head of Research, Africa Razia Khan, Standard Chartered, London, Razia Khan said it is important for the central bank to commit to meeting market demand in full, to sustain any given dollar-naira rate. “Because the auction cut-off represents the lowest successful bid, most bids for foreign exchange are likely to have been settled at higher dollar-naira rates, and the interbank market will normally trade at a higher rate than that determined by the WDAS auction,” she said. According to her, naira stability would be achieved with the supplier able to comfortably anticipate and meet market demand. “In this case, it would require the CBN to stay ahead of the market, and pre-empt any spike in forex demand,” she said.