Posted by By Chijama Ogbu, Business Editor on
The Central Bank of Nigeria (CBN) has sold more than $900 million to the banks, as part of measures to stem the slide in naira's value after it plunged last week.
The Central Bank of Nigeria (CBN) has sold more than $900 million to the banks, as part of measures to stem the slide in naira's value after it plunged last week.
A source in a commercial bank, which was involved in the trading, said the money was supplied to the banks late last Friday.
The source said the dollar was offered to the banks at a cut-off rate of N130 to the dollar, which means that all banks that bid above that rate were supplied.
At the Annual 2008 Dinner of the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos, later that day, CBN Governor Prof. Chukwuma Soludo said the bank would provide more foreign exchange (forex) and take other measures to ensure the stability of the forex market.
The CBN had held back supplies from the bi-weekly Whole Dutch Auction System and allowed the naira to fall sharply against the dollar in the past few days.
The CBN supplied $180 million last Wednesday, $100 million last Monday, and $105 million penultimate Wednesday.
The bank's dollar-demand
on each occasion was about $1 billion.
Banks had bought $1.2 billion forex in the two auctions held two weeks ago, as the CBN was supplying as much as they demanded. The naira slide started when the CBN decided to restrict supply, which instantly resulted in demand crisis.
Since then, the currency which had been stable at N117 for close to a year, caved in to a surge in demand, going down to N130 to a dollar.
In the black market, the dollar sank by more than N20 to trade at between N137 and N145 against the dollar.
The CBN has sold forex in excess of $6 billion to banks in the past two months, which is a record in the history of the country.
The surge in demand began from October 6, with the banks buying $257.449 million, four times more than the $60 million put on offer on the day. The banks bought $892 million on the auction held on October 27 alone, which is the highest single-day demand since the WDAS was introduced in 2006.
Before now, forex demand had been weak, much below the $60 million the CBN used to offer in the biweekly auction.
For instance, the CBN offered $65 million on September 15; the banks bought only $16 million. There were even some auction days in the past when no bank offered any bid.
However, the CBN in the auction held on November 11, increased its stake to $250 million in reaction to the soaring demand. It fell back on the reserves to fund the excess demand by the banks.
CBN spokesman Festus Odoko told The Nation on telephone that the huge demand from the banks was due to the drying up of their autonomous sources as a result of the global crunch.
He said: "These sources are not as buoyant as they used to be. That is why they now channel their demand to the CBN window.
"That is the importance of keeping healthy reserves, so that at times like this when other sources are not forthcoming we will still be able to fund our imports. We can fall back on the reserves. When we harp on the need for keeping reserves, some of our people do not understand. What would have happened if we have weak reserves position?"
Odoko said the surplus demand by the banks was being funded from the reserves.
Finance Minister Dr. Shamsuddeen Usman said at the weekend that the development at the forex market was an indication that the market had become more exposed to the international market.