In a significant move to address the growing demand for foreign exchange and stabilize the naira, the Central Bank of Nigeria (CBN) on Wednesday reintroduced the Retail Dutch Auction System (RDAS). This marks the first foreign exchange (FX) retail auction under the current CBN administration, signaling a strategic effort by the apex bank to manage the FX market more effectively.
The re-initiation of RDAS aims to achieve multiple objectives, including satisfying the increasing FX demand driven by seasonal factors such as summer tourism and businesses seeking dollars for trade. Additionally, the auction is intended to stabilize the naira and facilitate transparent price discovery in the FX market.
During the auction, the CBN received bids totaling USD1.18 billion from end users, which were submitted through 32 authorized dealer banks. However, bids valued at approximately USD313.69 million from six banks were disqualified due to late submissions or failure to adhere to the required bidding format. As a result, the CBN successfully auctioned USD876.26 million at a cut-off rate of NGN1,495.00 per USD, with settlement for the successful bids scheduled for Thursday, August 8.
While the CBN has not yet specified the frequency of these retail auctions, the immediate outcome suggests that the naira may experience short-term stability due to reduced demand pressure and tight naira liquidity following the auction. The significant portion of bids that were met is expected to ease the strain on the currency in the short term.
However, this currency respite may be temporary if the CBN does not continue to sustain its interventions in the FX market. The long-term stability of the naira will depend on the CBN’s ability to consistently meet demand through such auctions and other measures aimed at enhancing FX liquidity.
