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WDAS: CBN sells $3.3bn in March

By on April 14, 2011

LAGOS — The Central Bank of Nigeria, CBN, sold $3.386 billion worth of foreign exchange at the Wholesale Dutch Auction System, WDAS, in the month of March, even as it promised to maintain the three per cent exchange rate band to ensure stability of the naira.

CBN Governor, Mallam Lamido Sanusi, in an interview with Bloomberg said the official foreign exchange rate would remain within the projected band of three per cent above or below N150 per dollar.

On the persistent rise in foreign exchange demand and the concomitant depreciation of Naira in March, Sanusi said: “In a pre-election period, all investments are suspect but the band is wide enough to ensure flexibility without volatility.”

According to the monthly economic and financial report for March issued by the Financial Market Dealers Association, foreign exchange demand rose 100 per cent to $4.08 billion in March from $2.04 billion in February. The amount sold by the apex bank also rose by 88 per cent $3.386 billion from $1.794 billion.

The report stated: “The demand for foreign exchange stepped up in the month to equal the cumulative for demand for both January and February 2011. At every auction held in the month, the WDAS experienced demand that had been hinged on number of factors such as capital flight – occasioned by repatriation of investments, importation at the downstream oil sector and other sundry expense.

“Importantly, CBN made a statement in the month through the volume offered at the auction of Monday, 28 March 2011, that it has enough reserves to meet genuine market demand and defend the naira. The CBN offered USD$3.40bn and sold USD$3.386bn against USD$1.79bn sold in February and USD$2.00bn sold in January 2011.

The demand for foreign exchange got a boost from the autonomous sources in the month, as inter_bank market recorded dollar injections from Niger Delta Development Commission (NDDC), Shell, Total, NNPC and others totalled USD$475.00 million. In the corresponding month in 2010, CBN sold $1,964.76 million.

“The market behaviour, in terms of rates across the market segments was inversely related in the month. At the WDAS market, the value of naira dipped consistently as a result of huge demand for foreign exchange, without commensurate supply in the month.

However, the inter_bank market that ordinarily felt the supply gap pressure with resultant exchange rate volatility, absorbed the pressure as Naira recorded appreciable gains against the UDS$.  Further finding showed that dollar injections from the autonomous sources strengthened the naira at the Inter_bank market against the USD$ in the month.

The BDC and Parallel market recorded mixed behaviour with minor volatility when compared with the previous months.

“Further analysis on month – on _ month showed an opening figure of $1/N149.5600 and $1/N150.5600 for Bid and Offer respectively at the first business day of the WDAS, and closed the month at $1/ N150.5200 and $1/N151.5200 against the closing rate of $1/ N149.6100 and $1/N150.6100 in February 2011. At the Inter_bank market, Naira_Dollar relationship opened at $1/ N153.2175 and $1/ N153.3175 for Bid and Offer and closed at $1/ N154.9550 and $1/ N155.0550 against the closing rate of at $1/ N153.0400 and $1/ N153.1400 for Bid and Offer respectively in February 2011.

The BDC and parallel markets closed the month at $1/ N157.0000. The premium between CBN and Parallel market as at month_end March was 3.833%. The figure is less than the IMF benchmark of 5.00%.”

Source : Vanquard