CBN Sells $6m To Banks As Naira Gains Strength At Parallel Market
Having released a new foreign exchange policy, the Central Bank of Nigeria (CBN) yesterday sold $6 million dollars to banks at N304.75 to the dollar with plans to sell $500 million on a 60-day forward contract.
Following the release of the new policy, the value of the naira which had sunk to an all time low of N522 at the parallel market on Monday improved yesterday to N519 to the dollar. The CBN had devalued the naira for retail use directing banks to sell dollar at N375 to customers for school fees, medicals and travel allowances.
Its $6 million dollar sale yesterday is far more than the $1.5 million which it regularly sells at the interbank market. On Monday, the apex bank had said as part of the new policy will sell forex at the forward market with a time frame of not more than 60 days to improve dollar liquidity at the interbank market.
Meanwhile, the apex bank said it also plans to mop up naira liquidity in the financial market through the sale of Treasury Bills. It said it will raise N26.14 billion in three-month debt, N62 billion in six-month bills and N222.08 billion in one-year notes, using a Dutch auction system.
The CBN issues treasury bills twice a month to finance the budget deficit, help manage commercial lenders’ liquidity and curb rising inflation. Inflation had risen to 18.72 per cent in January from 18.55 per cent last year December, the 12th consecutive rise.
The trend was worsened by dollar shortages, which have crippled the import-dependent economy and triggered the first recession in 25 years. The government is also facing funding challenges due to the low price of oil. It expects the budget deficit to widen to N2.36 trillion this year as it tries to spend its way of out of the recession. More than half of the deficit will be funded through local borrowing.
As part of funding the budget deficit, the Minister of Finance, Kemi Adeosun, said the country plans to borrow at least $1 billion from the World Bank. Speaking with CNBC, she said Nigeria hoped to sign in the next few months a loan worth $1.3 billion from China’s Export-Import Bank (Exim) to fund railway projects in the country.
