.Sells $660m in forwards auction
The Central Bank of Nigeria (CBN) yesterday warned that any authorised dealer that defaults in the settlement of any auction or 2-way quote with the CBN in the financial market would be duly punished.
The punishment includes suspension from all auctions as well as from its discount window.
The central bank stated this in a circular to all authorised dealers titled: “Amendment of S4 Business Rules and Guidelines,” dated February 1, 2017, that was signed by its Director, Financial Markets Departments, Dr. Alvan Ikoku.
Specifically, the amendment was with reference to Section 10.1 of the S4 Business Rules and Guidelines. The directive was with immediate effect.
It stated: “Any auction of 2-way quote with the CBN must be settled. If it is on queue, it shall be given highest priority and when it fails to settle, the system shall generate an automatic Intra-day Liquidity Facility (ILF) backed by collateral to settle the transaction. Where there are no securities, the allotment shall be cancelled and the defaulter suspended from all auctions for eight weeks from the date of default.
“ILF shall be bought back or converted to Standing Lending Facilities (SLF) by the participant by the close of business day, failing which it shall be automatically converted to SLF at the prevailing SLF rate plus 500 basis points.
“If any SLF is not repurchased by the participant bank by the next business day, such participants shall not be eligible to access the discount window until such outstanding obligation is settled in accordance with Section 27 of the Guidelines for the Conduct of Repurchase Transactions under the CBN Standing Facilities.”
Furthermore, the central bank directed that henceforth, all SLFs must be bought back latest by 10am on the maturity date, adding that ” failing which, the encumbered securities would be automatically rediscounted.”
Meanwhile, the central bank yesterday sold $660 million in three- and five- month currency forwards at an auction aimed at clearing a backlog of dollar demand.
Last Wednesday, the central bank had asked commercial lenders to bid in a special currency auction targeted at clearing backlog of dollar obligations of manufacturing, airlines, agriculture and petroleum sector.
Reuters said the results of the auction were announced late Tuesday while payment for the dollar sales was due on Wednesday.
This was the first major dollar sales to the key sector by the central bank this year in a bid to spur growth and revive the economy which slipped into recession last year due to currency crisis necessitated by drop in global oil prices.
Nigeria is in its first recession for 25 years, caused by the oil price drop which has cut the supply of dollars needed to fund imports.
The naira closed at N498 to the dollar on the parallel market yesterday, while commercial lenders quoted the currency at N314 to the dollar at the interbank market on Wednesday.