Central Bank of
Nigeria (CBN) sold $16.6 million in short-tenored foreign exchange
forwards at its first such auction on Wednesday, at rates which
indicated it expected the currency to remain stable or strengthen.
The regulator began
offering 1- 2- and 3-month forwards at its bi-weekly foreign exchange
auctions on Wednesday as part of efforts to smooth dollar demand and
help businesses in sub-Saharan Africa’s second biggest economy hedge
currency risk.
It sold $10 million
worth of 1-month forwards at 152.18 naira, $620,000 of 2-month forwards
at 153.97 naira, and $6 million of 3-month forwards at 154.10 naira at
the auction, currency dealers said on Thursday.
The naira, which
eased to its weakest level in 18 months last week, ahead of April
elections, was trading at 155.90 to the dollar at the interbank market
on Thursday, compared to Wednesday’s close of 156.05.
Increase demand
Although demand at the maiden forwards auction was relatively low, analysts expect it to pick up over time.
“Although
yesterday’s forward auction could be perceived as a relative failure
given the marginal level of demand, we note this was the first attempt
by the Central Bank to formally launch derivative products,” said Samir
Gadio, emerging markets strategist at Standard Bank.
“This was more a test auction and volumes could still increase in the future as more corporates get set up to bid,” he added.
Dollar demand rose
to $584 million at the Central Bank’s bi-weekly spot forex auction, the
highest for months, but the regulator sold only $400 million at 151.27
on Wednesday. It met all the demand at the forward auction.
Businesses and rich
Nigerians are going long dollars to hedge against the risk of any
prolonged political upheaval due to a April 9 presidential vote, in
which President Goodluck Jonathan is seen as the front runner.
Boost liquidity
It is hoped that
developing naira forwards will boost liquidity in the foreign exchange
market, but analysts say the move may not be sufficient to ward off
short-term volatility in the run-up to the polls.
“We expect the
forward market to help smooth aggregate forex demand only gradually in
the medium to long run rather than immediately, notably given the
speculative nature of the current pressures on the exchange rate,” Mr.
Gadio said.
