CBN defends naira with $1.4bn in two weeks
The increasing pressure on the naira has forced the Central Bank of Nigeria to defend the currency with $1.45bn within the first two weeks of this year, latest statistics by the bank has shown.
According to the data, the central bank offered $1.45bn in four regulated actions through the Retail Dutch Auction System, which was introduced October last year.
Of this amount, $1.44bn was bought by dealers at the Foreign Exchange Dutch Auction System.
The auctions were held on January 6, 8 13 and 15 respectively, with the central bank offering $350m, $400m, $350 and $350 respectively.
In contrast, the CBN offered a total of $420m in four auctions within the first two weeks of last year.
It offered $150, $100m, $50m and $120m on January 7, 9, 14 and 16, 2013 respectively. Of this amount, only about N313m was bought by foreign exchange dealers.
This means that the amount the CBN offered for sale within the first two weeks (four auctions) of the year increased by 340 per cent from $420m in 2013 to $1.45bn in 2014.
Analysts have said that the naira will come under intense pressure this year as the nation prepares for the general elections next year.
The Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, had recently said that the naira will come under intense pressure this year.
Rewane said new members of the Monetary Policy Committee would need to find a way to support the currency.
'I don't want to use the word devaluation but I surely know that the currency will come under pressure. I know that the monetary policy in 2014 will change in line with the new players in the MPC,' he said.
On the price level, Rewane noted that the average inflation rate would hover between nine and 10 per cent this year.
He said, 'I think we will have a higher rate of inflation; the rate of inflation will increase a bit; it could be anything between nine and 10 per cent because of the pressure on the naira. That will translate itself into higher prices.
'There will be a bit of pressure on the naira; there will be increased money supply. There will be wage pressure. Alternative cost of energy will be a determinant now that the power sector has been privatised; there will be higher tariff, which will determine inflation.'
In a bid to save the naira from devaluation last year, the CBN defended the currency with approximately $26.6bn from the nation's external reserves.
The bank sold about $26.6bn to currency dealers in 94 Foreign Exchange Dutch Auctions between January and December 2013.
It sold about $19.8bn to currency dealers in 72 auctions through the Wholesale Dutch Auction System between January and September last year, while it offered $6.8bn to the dealers in 22 auctions through the Retail Dutch Auction System between October and December.
The CBN had on October 2 last year replaced the WDAS with the RDAS because of the ineffectiveness of the former in order to address the hitches in the foreign exchange market. Punch