Central Bank of Nigeria, CBN, yesterday sold $500 million at the bi-weekly foreign exchange auction to forestall depreciation of the naira.
The amount sold represents 66 percent increase when compared to $300 million sold per previous foreign exchange auctions. The increase represents a strong signal from the apex bank about its determination to stabilise the naira.
However, despite this increase, the naira depreciated by 10 kobo at the inter-bank foreign exchange market yesterday.
From N159 per dollar, the interbank exchange rate rose slightly to N159.10 per dollar. But at the official market, the naira remained stable, as the official exchange rate remained N155.75 per dollar.
According to the result of the bi-weekly Wholesale Dutch Auction System, WDAS, CBN offered $500 million, and sold millions of dollars to 21 banks.
"It is a demonstration of capacity and capability to meet foreign exchange demand on the part of the CBN," said Wale Abe, Executive Secretary, Financial Market Dealers Association of Nigeria, FMDA.
He said this would help to eliminate speculation against the naira in the foreign exchange market. Abe said: "CBN perceived there was a shortfall in supply, which increased demand pressure, hence to reduce this pressure and forestall speculation, CBN decided to intervene to ensure that all outstanding genuine demand is met.
"With this, there is no reason for anybody to speculate about the ability of CBN to meet demand."
Due to increasing foreign exchange demand, the naira has depreciated by N2.53 at the interbank foreign exchange market this year. From N156.67, the interbank exchange rate rose to N159.1 per dollar.
This is despite increased foreign exchange sales from CBN. From $250 million per auction, CBN had earlier in the year increased foreign exchange sale to $300 million per auction.
But this was inadequate to meet increasing demand owing to huge foreign portfolio investment outflow and declining revenue from oil.