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CBN Allocates $876m FX to Banks At N1495/$ In Recent Auction Amid Rising Demand

The CBN sold $876.26 million in foreign exchange via the rDAS, aiming to alleviate market demand pressure.

The Central Bank of Nigeria (CBN) on Wednesday confirmed that it sold Foreign Exchange (FX) to end users through a Retail Dutch Auction System (rDAS) on August 06, 2024, to reduce the demand pressure market, and promote price discovery.

The central bank further disclosed that a total bid valued at $1.18 billion was received from 32 Authorised Dealers Banks (ADBs), of which $876.26 million from 26 banks qualified at a cut off rate of N1495/$.

The apex bank also disclosed that bids from six banks valued at $313.69 million were disqualified.

The result of the retail FX sale to end users through rDAS, was communicated via a circular dated August 6, 2024, signed by CBN Director, Financial Markets Department, Dr. Omolara Omotunde Duke.

The CBN noted that its intervention at the rDAS was in line with the objective of the bank to boost liquidity to the market as well as promote price discovery.

The apex bank further explained that four banks submitted their bids after the cut off time of 3:00pm, while two banks did not provide bids in the template submitted, thus earning them a disqualification.

The CBN added, “All bids with Form Q and unverifiable Form A and Form M on the trade portal were disqualified.”

It added that to ensure the transparency of the process, the total bids submitted by banks and all qualified bids for payment will be published on the CBN’s website for the information of the public.

According to the central bank, ADBs were required to submit a comprehensive template that contained the details of the Forms A and M of all the outstanding trade backed unmet FX demand of their customers via email on August 06, 2024 between 9:00am and 3:00pm.

The templates were all password protected with the passwords submitted to the CBN after the deadline for the submission of the bids, and the bids were opened and collated, thereafter.

Furthermore, the accounts of all end users were to be funded with the naira equivalent of their bids by Wednesday, 07 August 2024.

“The settlement for the successful bids is T+2, that is. Thursday, August 08, 2024,” the central bank added.

The bank, in a circular to banks, announced a strategic intervention through the rDAS in a bid to address the growing unmet liquidity demand from end users.

The initiative aimed to mitigate the increasing demand pressure in the FX market and stabilise the Naira exchange.

The CBN said it observed a significant rise in unmet FX demands from end users with banks, which had exacerbated the pressure on the FX market and adversely impacted the naira’s exchange rate.

“The CBN has noted growing unmet FX demand from end users with banks. This has continued to increase the demand pressure in the FX market with adverse impact of the exchange rate of the Naira”, the circular noted.

The rDAS complements the two-way quote system deployed over the past few months to enhance liquidity in the interbank market, through which over $305 million of FX has been sold to authorised dealers in the last three weeks.

The CBN stated that its policy objectives are yielding tangible results and bolstering market confidence.

It stated that net FX flows rose to $25.4 billion between January and June, marking a 55 per cent year-over-year increase.

This growth had been driven by a rise in capital importation, which reached $6 billion in June 2024, and record inflows from diaspora remittances through formal channels.

The forex market is also showing signs of improvement and increased depth, with more robust and diversified sources of liquidity contributing to the sustained convergence of exchange rates across all segments of the market.

The official market recorded a turnover of $43 billion in customer transactions by the end of July 2024, with CBN-supplied liquidity representing less than 5 per cent of total market activities.   

The CBN said it remained steadfast in its commitment to fostering a transparent, market-driven foreign exchange market, and it will continue to strengthen the market’s capacity to meet the needs of all legitimate participants.

James Emejo

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