Published On: Fri, Oct 21st, 2016

CBN meets only 39% of $814 million demand in forwards auction

Godwin Emefiele

Godwin Emefiele

In a sign of the increasingly tight foreign exchange supply situation in the country, the Central Bank of Nigeria (CBN) could only meet 39% of dollar demanded in the two-month forward auction it held on Wednesday night.

The special intervention auction for the preferred sectors of agriculture, airlines and manufacturing was held by the CBN to clear part of the backlog dollar demand.

But of the $814 million demanded at the auction, the CBN only sold $313 million, representing just 39% of total demand.

Traders said last night that the flexible intervention programme which was at the exchange rate of N310/$ was aimed at the preferred sectors to re-energise the real sector.
However, the outcome of the auction was disappointing for most dealers who were looking forward to interventions of over $600 million to assuage the growing hunger and desperation for foreign exchange.

The agricultural sector received the highest allocation of 62 percent, leaving the other sectors to manage the balance, which was not enough to meet their needs, increasing the frustration of many dealers.

Some analysts said that the action of CBN is suggestive of the return to the old method of the apex bank being the sole supplier of foreign exchange with the attendant pressure on the local currency.

“The CBN should pursue policies that would promote and encourage investment inflow, rather than these isolated cases of meeting demand and further encouraging uncertainties and frustrations in the market,” said a trader.

Explaining his frustration, another trader said, “The CBN should rather than continue to struggle to share the little foreign exchange, concentrate on instituting a proper market structure that would engender transparency and confidence in the management of available dollars.”

Traders said the CBN’s action amounts to expanding controls with the attendant risks discouraging dollar inflows and distorting the pricing of the naira in the market.

“The CBN’s policy should aim at closing the gap between the different markets and aligning them gradually with the official rate,” traders said.

The CBN had notified the markets last week that it will carry out a special forward sales of dollars to its preferred sectors of agriculture, aviation, machinery and raw materials importers, thus guaranteeing letters of credit (LCs) for importers to ship in required goods.

Isaac Okorafor, acting Director, Corporate Communications Department, had confirmed that the CBN would fund the requests from the various sectors in the secondary interbank market to give a boost to the importation of required goods to drive economic growth.

Okorafor had explained that importers in the agricultural sector would be getting the largest percentage allocation of 62 percent of their requests, while importers of machinery would receive 53 per cent of their requests. Other sectors to receive allotments are the airlines, which will have 32 percent of their request settled, as well as the importers of raw materials. However, only the agricultural sector got its full allocation in the special auction.