Nigeria's central bank auctions US dollar as exchange rate hits 'boiling point'

The Central Bank of Nigeria (CBN) has launched a new move to buy the naira and sell the US dollar to currency traders after the exchange rate hit boiling point. The FX auction is the apex bank’s tactics to halt the negative tide against the local currency in the FX market.

Naira has crossed the red line at the official and informal currency markets before the apex bank intervention at the parallel market. Exchange rate has worsened due to increased demand amidst supply shortage.

Nigerians import taste and local companies reliance on foreign inputs have remained the major drivers of surging demand for foreign currency in the economy. The CBN told Bureau de Change (BDCs) to submit a bid for $20,000 at the rate of N1,580 for onward disbursement for invisible transactions by FX users.

The CBN had excluded the informal currency traders from FX auction as the authority sought re-registration of the operator. Since the announcement, FX auctions at the parallel market were paused until the Friday notice surfaced.

The apex bank asked BDC operators to sell to customers at its rate plus a 1% spread on each US dollar sale to FX users in the parallel market. The apex bank is coming to the segment after the naira reached boiling point in the parallel market.

The exchange rate at the unofficial FX market reached N1625 but later recoiled to N1615 at the informal currency market.

“This is to tell the Bureau de Change (BDC) operators and the general public that we are providing more liquidity into the market. To this end, the CBN has approved the sale of US $20,000 to each eligible BDC at the rate of N1580/$”.

“This is to meet demand for invisible transactions”, the CBN said in a notice.