The Central Bank of Nigeria (CBN) has taken a significant step to stabilize the naira by auctioning $876.26 million to end users through 26 commercial banks. This move is part of the apex bank’s latest efforts to address the persistent foreign exchange (FX) liquidity challenges in the country.
The auction, conducted on August 6, 2024, is intended to ease demand pressure on the naira, which has been trading between N1,450 and N1,600 per dollar in recent months. Following the auction, the naira appreciated slightly, closing at N1,596.52/$1 on Wednesday, down from N1,601/$1 on Tuesday.
In a statement released on Wednesday, the CBN detailed the auction process, explaining that a total of $1.18 billion in bids was received from 32 authorized dealer banks. However, bids totaling $313.69 million from six banks were disqualified due to late submissions or errors in the bidding templates.
The CBN approved a cut-off rate of N1,495/$1 for the Retail Dutch Auction, ensuring that successful bids were settled by Thursday, August 8, 2024. The auction process was designed to promote transparency, with the CBN pledging to publish all qualified bids on its website for public information.
This auction marks the CBN’s abandonment of its 12-month forex policy in favor of the Retail Dutch Auction System, aiming to address the growing unmet foreign exchange demand that has been placing pressure on the naira. The demand has been exacerbated by seasonal factors such as summer tourism and the need for businesses to import goods in Nigeria’s heavily import-dependent economy.
Financial analysts, including Charles Sanni, CEO of Cowry Treasurers Limited, have noted that while the CBN’s intervention may provide temporary relief for the naira, it is unlikely to be sustainable given the country’s low foreign reserves. Sanni highlighted the potential risk for currency speculators but cautioned that the CBN may lack the necessary resources to maintain such interventions over the long term.
The CBN’s latest move reflects its ongoing commitment to stabilizing the naira and ensuring sufficient liquidity in the foreign exchange market, even as the challenges of a heavily import-reliant economy persist.
