The Retail Dutch Auction System (RDAS) FX market policy revived by the Central Bank of Nigeria (CBN) took off on a positive note with $1.2 billion transacted by 32 authorised dealer banks.
Transaction activity report at the auction showed that out of the transactions, bids amounting to $876.3 million from 26 banks qualified at an approved cut-off rate of N1,495.0/$ while bids valued at $313.7 million from six banks were disqualified.
Analysts from Afrinvest West Africa disclosed that in the days following the auction, the Naira appreciated 1.7 per cent at the NAFEM window to end last week at N1,574.2/$.
The report titled: “Domestic Macroeconomy: RDAS Reintroduction, CPI Expectation… Will Price Pressure Streak be Broken Yet?”, said the CBN reintroduced the RDAS policy to enhance FX liquidity, address ongoing demand pressures and support price discovery.
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It disclosed that the CBN reintroduced the RDAS which was previously suspended in 2015. “For context, the RDAS is a direct sale of FX by the Central Bank through the banks to the end users. The price at which the FX is being sold is usually determined by the highest accepted bid in the auction. Central Banks employ this to control FX liquidity and stabilize the exchange rate market by allowing market forces to influence currency allocation,” it said.
The auction pricing, the report said, closely reflects existing reality in the wholesales FX market – the NAFEM rate have swung between N1,450.0/$ and N1,600.0/$ in most of 2024. This highlights the fact that the FG’s goal of bringing the NGN/USD rate to ₦N00.0/$ by year-end is unlikely. As such, we hold to our view that for the naira to regain lasting strength, there is a need for the implementation of strategic fiscal policies to boost economic productivity.
“Without an increase in oil production (to at least 1.80mbpd), higher remittances flow through official channels (to at least $20.0bn per annum), and improved inflows of patient longer term capital (FDI of at least $10.0bn per annum), the naira would remain in the shadow of the FG’s dream target,” IT SAID
“Meanwhile, the IMF in it’s 2024 article IV consultation note estimate Nigeria’s monthly import bill at $6.0bn, implying that the reserves could only cover 6 months imports. Regardless of the estimate considered, the FX reserves could run dry in 6 to 9 months should the magnitude of the bids at the auction ($1.2bn) be met weekly and accretion rate does not offset outflows”.
“In addition, seasonality trends suggests that FX demand for manufacturing imports, educational commitments and summer travels peaks in Q3. Hence, we are of the view that the measure will only temper the demand pressure that is building up,” it said.
