In order to clear a backlog of dollar obligations that businesses owe, the Central Bank of Nigeria (CBN) has asked Deposit Money Banks (DMBs) operating in the country to bid in a special currency auction, forex traders have disclosed.
In view of this development, commercial banks are expected to submit backlog dollar demand from fuel importers, airlines, raw-materials producers, and makers of agricultural chemicals and machinery for manufacturers.
However, in a notice to the lenders the apex CBN said it would hold a retail foreign exchange auction on Wednesday to sell two- to five-month dollar forwards. The amount of dollars to be sold was unspecified, traders said.
Last December, the central bank sold around $1 billion on the forward market to clear a similar backlog of dollar obligations, in an effort to support production in Africa’s biggest economy
Nigeria is in its first recession in 25 years, caused by low prices for oil. That has cut the supply of dollars needed to fund imports, which the country depends on for everything from fuel to food.
The central bank had on Tuesday said it would continue to provide hard currency, with priority given to manufacturing industries that need to import raw materials and spare parts .
The local currency, the naira, was trading at 306 to the dollar on the official interbank window on Wednesday, close to the 305.50 to a dollar it has traded at since last August. It was quoted at 498 to the dollar on the open unapproved market, cheaper than last week’s 497 to the dollar.
Nigeria’s foreign exchange reserves rose to $27.69 billion by Jan. 23, up 8.97 percent month-on-month as oil prices rose.