WDAS: CBN scales down Forex

The Central Bank of Nigeria last week scaled down its foreign exchange supply in the Wholesale Dutch Auction System from $200m to $62.9m.


The amount was sold to only 16 banks that participated in the auction, while the $200m sold at the previous auctions were sold to higher number of participants ranging from 19 to 22.


In spite of the reduction, the naira still maintained its firm position of N149.14 against the United States dollar as in the last three auctions.


It, however, depreciated against the pound sterling and the euro where it exchanged for N246.58 and N220.78 respectively.


At the previous auction, the local currency exchanged for N245.56 against the pound sterling and N219.71 against the euro.


Dealers said the reduction in the number of participants in the auction as well as the reduction in supply might not be unconnected with the influx of forex into the inter-bank market where liquidity has been largely boosted by the Federal Government stimulus, intervention by oil firms and the Nigerian National Petroleum Corporation, as well as the bail-out package from the government.


Traders said on Friday that the inter-bank lending rates remained at 4.25 per cent on average as liquidity from previous cash inflows was enough to meet weak credit demand from borrowing banks.


The secured Open Buy Back, overnight and call money rates were unchanged at four per cent, 4.25 per cent and 4.5 per cent respectively, in spite of investments in Treasury Bills and forex purchases in the week to Friday.


According to one of the dealers, ”There were few cash outflows into Treasury Bills worth about N45bn and payments for forex purchases at the CBN‘s WDAS, but the funds in the system were sufficient to meet demand for credit.”


They said the impact of the billions of naira injected into the system as part of a government stimulus package and bail-out of undercapitalised banks remained dominant in the system.


”Most banks have sufficient liquidity to meet their inter-bank obligations,” another banker said.


The cost of borrowing among banks slipped to 4.25 per cent on average two weeks ago from 4.91 per cent the previous week after large cash inflows from a $2bn economic stimulus package and the release of October budgetary allocations to the three tiers of government.


Dealers said the rates could climb gradually this week, but increases were likely to remain minimal given that cash balances in banks‘ books remain strong.