CBN’s $418m forex, T-Bills auctions tighten liquidity
Begins seven to 30-day maturity Forwards sale
The combination of foreign exchange (forex) and Treasury Bills (T-Bills) auctions by the Central Bank of Nigeria (CBN) last week, moderated the quantity of money in circulation as investors demanded every available naira to pay for their transactions.
Specifically, CBN had on Friday, ended the weekly transactions with a $418 million at the retail-SMIS at a marginal rate of N310/$, with the airlines, agriculture, petroleum and raw materials/machineries sub-sectors benefitting from the exercise.
Already, the bank will begin to sell short-tenured forwards of seven to 30-day maturity to meet demand of manufacturers and all other foreign exchange users, a sharp change from the ongoing 60-day tenure.
The apex bank had earlier in the week, conducted forex auctions on other days except Wednesday, selling $150 million at the interbank and Forwards market, and a two-time intervention for the Bureau De Change operators.
Consequently, the margin at which banks borrow and lend among themselves rose in all the trading days, settling at 4.2 per cent and 3.8 per cent higher at the weekend for Open Buy Back and Overnight respectively, compared to previous week’s record.
The money market rates also rose further mid-week as T-Bills maturity worth N239.4 billion was offset simultaneously by a rollover of the same amount.
The week closed with rates higher at 14.7 per cent for OBB and 15.3 per cent for Overnight, against 14.2 per cent and 14.6 per cent respectively, the previous day.
However, a poll of financial analysts showed that barring changes in inflow expectations, rates will trend higher this week as the monthly auction by the Debt Management Office and Federal Government’s savings bond debit will be due.
The Acting Director of Corporate Communications, CBN, Isaac Okorafor, said even in the weeks ahead, apex bank will sustain the interventions in all segments of the market.
“These significant injections of foreign exchange into the market should reassure all foreign exchange users of our determination to continue to meet all legitimate FX demand in the market while striving to achieve exchange rate stability in the market,” he said.
Meanwhile, the resurging parallel market rate may be tackled further with increased offerings at the interbank and Forwards markets this week by CBN.
The apex bank had continued its drive to boost liquidity in the forex market through the special wholesale forward sales for maturing Letters of Credit, as well interbank auctions for Deposit Money Banks (DMBs) to meet demands for invisibles.
During the week, the CBN sold a total of $250 million in series of wholesale forex auctions for raw materials and machineries, agriculture, airlines and petroleum products.
Despite the development, parallel market rates resurged to N405/$ at the close of transactions at the weekend, against N375/$ record two weeks ago, a situation that reliable source at CBN described as a “fight back” by speculators.
The source reassured of CBN’s strategy to ensure that speculators lose again this week, as well as strengthen the local currency towards convergence.
According to the Acting Managing Director of Afrinvest Securities Limited, Ayodeji Eboh, said while the recent moves by the apex bank to ease forex liquidity constraints and force the convergence are commendable, the month-long rally in the parallel segment seems to have come to a halt regardless of efforts.
“This further justifies the call for removal of capital controls and readmitting the 41 inadmissible items in order to further reduce the parallel market premium and ensure rates convergence.
“We continue to see forex rate trending within the band of N390/$-N400/$ in the parallel market, pending a review of the 41 items exempted from accessing forex at the official market,” he said.
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