Banks and financial market dealers are waiting to see how the Central Bank of Nigeria’s newly introduced retail foreign exchange auction system, called Retail Dutch Auction System, will affect the economy.

The CBN had on Wednesday replaced the wholesale foreign exchange auction method, called Wholesale Dutch Auction System, with the RDAS, as part of measures to curb money laundering, which it said was weakening the naira and could push up inflation.

“Available statistics indicate that Nigeria has become the largest importer of United States dollars,” the regulator said last Friday, explaining that its twice-weekly wholesale foreign exchange auction would be replaced with a retail version requiring dealers to reveal the identities of their buyers.

Operators in the foreign exchange market lauded the policy on Wednesday and said they were eagerly waiting to see how the “RDAS will play out in the financial market and the economy at large.”

The President, Financial Market Dealers Association, Mr. Sola Adegbesan, said the RDAS would help the CBN to identify possible leakages in the financial system and consequently plug them to improve the economy.

He said, “It is the right thing. Banks are saying the amount of dollars demanded at the WDAS is genuine, but the CBN is saying we are now going to start selling dollars based on the papers presented to us.

“In other words, instead of banks coming with an estimated amount of dollars they require, the CBN is saying, ‘apply to us based on the name of individuals who have applied for the foreign exchange through you.’

“CBN may even go to the extent of going to those companies to verify and seek to know why they are demanding such amount. Well, no one is sure how the policy will play but we are all looking forward to seeing how it will play out.”

The Head, Research and Intelligence, BGL Securities, Mr. Femi Ademola, said the purpose of the policy was to help the CBN block possible leakages, which have been putting pressure on the naira.

He said the CBN wanted to reduce the amount of dollars in circulation and, as such, had directed most foreign exchange payments to be made via cards, electronic transfers and other cash-less means.

Ademola, however, said the CBN must bear in mind that there were periods in the country when demand for dollars was usually high.

Source: Punch (by oyetunji Abioye)

The post Banks await outcome of new forex auction system appeared first on Investadvocate.

Financial market watchers have said that the inter-bank rates will drop further this week as a result of excess liquidity in the market.

Analysts at FSDH, in a report made available to our correspondent, said, “We expect Open Market Operation maturity of about N249.70bn to hit the system in the coming week. As a result of the anticipated injection into the system we expect the Central Bank of Nigeria to use OMO to mop up some of the liquidity in the market.

“Also, we expect FGN Bond Re-opening auctions of about N70bn (15.10 per cent FGN April 2017 and 16.39 per cent FGN January 2022) to take place in the market in the coming week. We expect inter-bank rates to drop further because of the liquidity in the market.”

The inter-bank rates moderated downward to end last week. The market was relatively liquid last week despite the withdrawal of about N186.26bn via the government securities market and foreign exchange sales by the CBN.

At the inter-bank market, the seven-day Nigerian Inter-Bank Offered Rate closed last week lower at 10.59 per cent, representing a 12-basis point decrease from the previous week’s figure of 10.71 per cent.

The 90-day NIBOR closed unchanged from the previous week at 11.63 per cent.

At the 91-day Treasury Bill auction, a total of N32.97bn worth of securities was offered and sold to competitive bidders. A total of N24.96bn was sold to non-competitive bidders, bringing total offer and sale to N57.93bn.

The bill was 123.12 per cent subscribed, as N40.59bn worth of bid was received from competitive bids. The bill was issued at a discount rate of 9.20 per cent.

A total of N32.97bn worth of matured bills was repaid into the system, leading to a net outflow of N24.96bn from this segment of the market.

At the 182-day TB auction, a total of N40bn worth of securities was offered and sold to competitive bidders. Also, a total of N30.33bn was sold to non-competitive bidders, bringing the total offer and sale to N70.33bn.

Source: Punch (By Ademola Alawiye)

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