CBN auctions $559m in three days as reserves near $48 billion

May 7 2018

A Combined two foreign exchange (forex) market interventions by the Central Bank of Nigeria (CBN), on Wednesday, at the weekend hit $559.34million, as the monetary policymaker sustained efforts to keep the market liquid and stabilise the local currency.

Meanwhile, the reserves' stockpile maintained the more than 18-month consecutive increases, as the nation's forex buffer settled at $47.6billion as at Friday.

The development signals a positive direction and perception by foreign investors as the activity level in the Investors' and Exporters' (I&E) Window remain upbeat, although falling 9.2 per cent when measured week-on-week, to $782.1million from $860.9million recorded last week.

Consequently, CBN official spot rate, which opened the week at N305.70/$ stayed the same all through the week and the parallel market rate, at N362/$, followed too, while investors at the I&E window, priced the local currency at N360.17/$ until the close of the week's transactions.

Meanwhile, the effect of money inflow in the banking system worth N314 billion last week, was offset with N600billion liquidity mop up by the apex bank, making the two trading instruments among banks- Open Buy Back (OBB), and Overnight rates to rise by 2.5 percentage points (ppts), and 2.8ppts to 4.4 per cent and five per cent respectively.

The CBN action, using the Open Market Operation (OMO), featured a 105-day instrument, worth N175.5billion at the rate of 11 per cent; 245-day instrument valued at N424.5billion at the rate of 12.1 per cent, which were largely oversubscribed.

Consequently, at the close of the week, OBB and Overnight rates closed lower, down by 0.36 per cent and 0.33 per cent to 2.8 per cent and 3.3 per cent respectively, while there is a pending N265.5billion maturing instruments this week with high anticipations of impacting money market rates accordingly.

"With the reduction in OMO auctions in the past month coupled with the moderating yield environment, we anticipate sustained interest in longer dated instruments in the near term," Afrinvest Securities Limited in its Weekly Market Update, noted.

CBN, at Friday's intervention, injected about $349.34million in the Retail Secondary Market Intervention Sales (SMIS) segment of the forex market and split among the agricultural, airlines, petroleum products, raw materials and machinery sectors.

The bank had two days earlier, intervened in the forex market to the tune of $210million, comprising $100million for the wholesale segment and $55million for both the Small and Medium Enterprises (SMEs) and invisibles segments. CBN spokesman, Isaac Okorafor, confirmed the releases and reiterated that the bank continued the forex interventions owing mainly to its commitment to guarantee liquidity in the foreign exchange market and boost the production sector.

According to him, the continued interventions, alongside the recent currency swap with the People's Bank of China (PBoC), would help ease pressure on the country's reserves, by providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses.

Speaking further, he explained that the Bank, in injecting funds into the market, was playing its role of safeguarding the international value of the legal tender currency through exchange rate stability. He said the Bank was also committed to diversifying the Nigerian economy from oil.

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