CBN cuts dollar reserve to stabilise Naira

The Central Bank of Nigeria (CBN) will sell United States (US) dollars both directly into the market and at auctions, the bank said, at the weekend.

The CBN has also lifted the amount of dollars banks can hold in reserve, in a continued effort to stabilise the naira currency.

The regulator, according to Reuters news, said it would raise the foreign exchange (forex) net open position limit banks can hold to three per cent from one per cent of shareholders’funds from today, less than two weeks after slashing limits to help protect the naira.

Net open position is the amount of dollars banks can hold relative to shareholders’ funds. The CBN lowered it to one per cent from five per cent on October 10 to free up dollar supply to the interbank market, but traders complained the market was almost brought to a halt by the decision.

The move curbed lenders ability to hold dollar reserves to meet customer needs, leading to volatile trading at the forex market. Some analysts said position limits at one per cent could have negatively weighed on banks’ revenues.

The apex bank also said it will sell dollars directly into the interbank market and continue providing greenback at its official twice weekly auctions. It provides dollar liquidity to meet high demand and help support the naira.

“In the continuing effort to sustain stability in the foreign exchange market, the Central Bank of Nigeria shall from time to time intervene in the interbank market. This is in addition to (auctions),” it said in a letter to banks.

The naira hit an all-time low against the dollar prior to an emergency CBN meeting two weeks ago as worsening global economic conditions curbed risk appetite and dollar demand from importers and speculators increased.

The naira has been volatile in thin trade this week. The local currency was trading at N159.30 to the dollar in the interbank market last Friday, weaker than N154.60 last Thursday, but firmer than the record low of N167.80.

The banking watchdog raised interest rates by 2.75 per cent to 12 per cent and implemented several other tightening measures to help protect the local currency at its emergency meeting on October 10.

It has also been selling dollars at auction and directly into the market. It offered to sell $200 million to some lenders in a special forex intervention last week Tuesday but later retracted the sale.

Dealers said the regulator sold $103.28 million at a cut-off rate of N150 to the dollar at an intervention last Thursday, helping to provide some liquidity in the market, which helped the naira to recover.

Traders said the CBN’s latest interventions could help narrow the wide margin between official and interbank trading rates and reduce the volatility in the market.

Nation