Dollar auction sales for the month of December by the Central Bank of Nigeria fell to a 12-month low of $1.2 billion, a 55 percent drop from its auction value of $2.69 billion the previous month (November).
December’s auction was also a 61 percent drop from year-high FX sales figure of $3.1 billion in September. This was when the impact of falling oil prices swung into full effect, leading to massive foreign investor sell-offs.
According to a currency analyst in a chat with BusinessDay, “declining dollar sales at the CBN auctions began right after the MPC decision to shift the exchange rate midpoint from N155 to N168 and widen the band from +/- 3 to +/- 5 percent.
“We saw an extraordinary intervention of $666.9 million in the fourth week of November to match the devaluation that just occurred.”
Analysis of WDAS sales by the CBN showed that six auctions were conducted for the month of December, compared with nine auctions conducted in November.
“It appears that the measures the CBN took has resulted in some calm in the markets. The caveat, however, is that in the absence of demand-side figures, it is likely that pressure still exists and would be sustained until the CBN devalues further post-elections,” the analyst said.
There are speculations that the regular MPC meeting scheduled to hold in January will be postponed to after the general elections in February.
External reserves at the end of December also inched lower by 6 percent, falling to $34.8 billion, down from $34.5 billion at the end of November, according to CBN data.
Despite the slowdown in auction volumes, Nigeria is not yet out of the woods. “The CBN is likely to continue to lose FX reserves as it seeks to cap USD-NGN in the interbank market and periodically clear demand at the RDAS window, and as lower oil prices reduce USD inflows”, according to Samir Gadio, head of Standard Chartered Bank’s Africa Strategy and FICC Research, in a December note.
Nigeria’s external dollar holdings was deployed incessantly to prop up the naira, as the currency plunged as a result of waning attractiveness resulting from a plunge in price of the country’s main export revenue earner, crude oil.
The devaluation was also aimed at curbing speculative activities by local banks and currency traders, who were betting against the naira.
The CBN also spewed out several legislations targeting the banks, some of which include the mandate that banks were to close out their dollar positions at the end of every trading day.
Increased volatility
In the last month of 2014, the currency traded between N185 and N195 per dollar at the parallel market. Looking ahead, further depreciation to N200 per dollar is expected, according to analysts at the Financial Derivatives Company.
The interbank rate stood at N184 per dollar, weekend. The range of the Naira in the interbank market over that last month has been from N178 to N187 per dollar showing increased volatility.
The official exchange rate was devalued from N155 to N168 in November, amid the unrelenting fall in oil prices and concerns for its inevitable impact on foreign reserves.
Edozie Ifebi, Yinka Abraham, Josephine Okojie
