The second trading in foreign exchange under the newly adopted Flexible Exchange Rate policy witnessed a back and forth movement of the naira exchange for dollar from N281.5 it closed on Monday to N287 in early trade, but later strengthened to N285 and N284.
Effectively, the naira lost N2.5 to the dollar in yesterday’s trading, representing one per cent loss from Monday’s record and about 44 per cent decline from the price-peg of N197.
Meanwhile, the liquidity tightening effect of the $3.5 billion forward trading executed at the first trading, which resulted in the mop-up of about N1 trillion in circulation have impacted on the liquidity position of banks.
Specifically, the interbank lending rate, particularly the Overnight rate, rose to 60 per cent from 18 per cent on Monday and 2.2 per cent last Friday.
The overnight rate is the interest rate at which major financial institutions borrow and lend one-day funds among themselves.
The development means that for every N1000 lent among the banks, N600 will become the interest payment on the principal sum.
At the first trading on Monday, CBN auctioned over $4 billion, with $3.5 billion in the forward market and $520 million directly at the interbank market.
A report from Reuters said that a total of $31 million, was exchanged in early trade at the interbank market yesterday between N282 and N287, but firmed up to N281 after CBN’s auction and ended at N284.
A breakdown of the $3.5 billion deals on the forward market showed that CBN auctioned $697 million in one-month forward, $1.22 billion in two-month contract and $1.57 billion due in three months, in order to clear a backlog of $4.02 billion of demand.
