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RDAS: Forex demand shot up by 100 per cent

*As Naira gains N5 in parallel market

By  Babajide Komolafe
Foreign exchange demand at the official    market rose sharply by 100 per cent as the naira appreciated by N4 at the parallel market.


Analysis of the Retail Dutch Auction System (RDAS) sessions for foreign exchange purchases conducted by the Central Bank of Nigeria (CBN) last week showed that demand rose to $561.5 million from $276.98 million the previous week.

The CBN though offered N300 million sold $260.06 million. Consequently, the naira depreciated by six kobo at the official market as N146.76 exchanged for one dollar as against N146.7 in the previous week.

However at the parallel market, the naira continued its appreciation against the dollar gaining N5. The exchange rate fell sharply to N156 per dollar from N161 per dollar in the previous week. A Bureaux De change (BDC) Chief executive told attributed the appreciation of the naira to lack of demand in the parallel market. He said people are not buying because there is no money in the market.

At the interbank money market, cost of funds rose to 20 per cent reflecting persistent scarcity of funds. Open buy back (OBB) rates opened the week at 7.0 per cent  but rose to close at 8.0 per cent . Overnight rates opened the week at 17.25 per cent but also increased to close at 20 per cent. The upward trend in cost of funds started two weeks ago following a brief period of decline in interest rate.

It would be recalled that  the previous  week an influx of N329.08 billion statutory allocation hit the market causing interest rate to fall by almost half to 13 per cent from 22 per cent. According to money market operators, the relief offered by the statutory allocation fund was temporary hence the market relapsed into the cold grip of scarcity of funds by Friday money.

A senior bank treasurer   disclosed to  Vanguard that before the funds came in the market was in a deficit of over N250 billion, and only 50 per cent of the statutory allocation fund stayed beyond 24 hours in the market, hence the net inflow was inadequate to cancel out the deficit in the system.

In addition to this is the fact that most of the banks that benefitted from the inflow were banks that already had money.  Consequently by the close of business the previous week, there was an upward bidding for funds and the result was an increase in interest rate across the various tenured funds.


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