The Central Bank of Nigeria (CBN) last week halted the slide of the naira, selling $148 million to authorised local deposit money banks to boost foreign exchange liquidity and defend the naira.
Due to the shorttage in supply of foreign exchange, particularly the dollar, the apex bank conducted forex auctions last week to boost liquidity in the official market.
The dollar auction reversed trend in the currency market last week. The naira exchange rate had hit ‘red zone’,, a level which often triggers the forex intervention in the market.
Separate investment banking firms said in their reports that forex was auctioned at N1600 to authorised deposit money banks three times to alter exchange rate direction positively, according to analysts at MarketForces.
Spot data from FMDQ platform showed the naira appreciated by 5bps to N1,600 per dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on the back increase forex liquidity.
A slew of financial analysts however maintained that the size of the auction remained unimpressive, citing sustained dollar inflows into the foreign reserves.
“Naira has been falling while government focus to boost external reserves is a contradiction of the monetary authority’s primary function,” analysts told MarketForces Africa.
Forex spot data revealed that the exchange rate ended the week at exactly the same rate the CBN sold US dollars to banks.
Data from the apex hank portal showed that forex reserves showed that the gross reserves level grew by $302.83 million to $39.30 billion.
Activity or total turnover at the Nigerian autonomous forex market decreased by 33.8 per cent to US$1.14 billion on Thursday, with trades consummated within the N1, 581.16 – N1,696.00 band, Cordros Capital Limited said in a note.
In the forwards market, the naira rates increased across one-month and three month contracts.
Analysts said the 1-month forec forward contract appreciated by 1.2 per cent to N1,679.55 while 3-month contracts gained 0.9 per cent to N1,754.42 per dollar.
However, forward forec contracts for six and 12 months depreciated.