CBN sells $1bn to clear backlog of forex demand

Ebun Francis with agency reports

The Central Bank of Nigeria sold about $1bn on the forward market to clear a backlog of dollar obligations in selected sectors, according to foreign exchange traders. The traders described the sale as the largest special auction by the CBN since the naira peg was removed in June.

Before the peg on the dollar was removed in June, Outstanding dollar demand was about $4bn. Efforts to cut dollar demand have been largely unsuccessful due to low oil prices.

The Central Bank of Nigeria, the traders said, instructed banks to give priority to airlines, manufacturing firms, petroleum products importers and agriculture sectors, the sectors worst hit by the dollar shortage, in the auction.

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“The central bank sold $1bn at last week’s special forex auction and directed banks to issue fresh letters of credit to reflect the amount sold in favour of the affected sectors,” a senior currency trader told Reuters.

Traders said the CBN sold 30-day and 60-day forwards at the auction.

On December 19, the CBN instructed commercial lenders to submit their backlog of dollar demand from fuel importers, airlines, raw materials and machinery for manufacturing firms and agricultural chemicals for the special forex intervention.