The Central Bank of Nigeria (CBN) has auctioned $876.26 million to 26 commercial banks, aiming to strengthen the ailing naira and enhance liquidity in the foreign exchange market. This intervention led to a slight appreciation of the naira against the US dollar.
In a strategic move to stabilize the naira, the Central Bank of Nigeria (CBN) auctioned $876.26 million to 26 commercial banks on August 6, 2024.
This action, part of the CBN’s Retail Dutch Auction System, is intended to alleviate the foreign exchange market’s liquidity constraints and support price discovery.
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According to a statement from Omolara Omofunde Duke, Director of the Financial Markets Department at the CBN, the intervention led to an improvement in the naira’s value, which appreciated to N1,596.52 per dollar from N1,601 per dollar previously.
The auction received bids totaling $1.18 billion, of which $876.26 million were approved, while $313.69 million from six banks were disqualified due to submission issues.
“The Central Bank of Nigeria undertook this sale to reduce demand pressure in the FX market and promote price discovery,” the statement read. It also noted that the successful bids would be settled on August 8, 2024, and all end-user accounts would be funded with the naira equivalent by August 7, 2024.
Charles Sanni, CEO of Cowry Treasurers Limited, remarked on the intervention’s immediate impact: “The improved liquidity is expected to strengthen the naira. However, the sustainability of this effect depends on the CBN’s ability to maintain such interventions amidst potentially limited foreign reserves.”
Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, supported the intervention, highlighting its importance in reducing exchange rate volatility and boosting investor confidence. He stated, “The CBN’s actions are crucial for stabilizing the naira and addressing the negative economic impacts of currency volatility.”
The intervention comes in response to increasing unmet foreign exchange demand and aims to mitigate seasonal pressures from summer tourism and import-dependent businesses. The immediate effect was a 0.3% appreciation of the naira, with increased dollar supply indicating a positive market response.
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