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Forex: CBN suspends Wholesale Dutch Auction System

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Forex: CBN suspends Wholesale Dutch Auction System

Post  Admin on Thu Jan 15, 2009 8:47 pm

The Central Bank of Nigeria (CBN) said yesterday that it was suspending the Wholesale Dutch Auction System (WDAS) and re-introduce the Retail Dutch Auction System (RDAS) with effect from next Monday. The RDAS, the apex bank said, would be conducted on Mondays and Wednesdays.

Briefing newsmen on the outcome of the Monetary Policy Committee (MPC) meeting yesterday in Abuja, CBN Governor, Prof. Chukwuma Soludo, explained that the decision was taken after the committee reviewed the recent developments in the foreign exchange market and the depreciation of the naira in the light of decreased supply of foreign exchange vis a vis increased demand. Soludo said the MPC noted “the uncertainties and the speculative pressures” in the foreign exchange market.

He therefore said: “While it is desirable to allow the exchange rate to adjust in response to market conditions, the CBN remains determined to restore stability to the market."

He stated that “In the meantime, the CBN is reintroducing the Retail Dutch Auction System (RDAS) with effect from Monday, January 19, 2008 and will be conducted on Mondays and Wednesdays," adding, "We will revert to WDAS at the appropriate time.”

Reeling out some of the guidelines as agreed by the MPC, Soludo said under the RDAS regime, bid for the purchase of foreign exchange must be cash-backed at the time of the bid. He added that, “funds purchased from CBN at the Auction shall be used for eligible transactions only, subject to stipulated documentation requirements.” Such funds, he explained, “shall not be transferable in the interbank foreign exchange market.”

He also stated that “authorised dealers shall return to the CBN any unutilized funds within five business days after delivery, at the rate of purchase.”

In addition, the CBN governor noted that, “interest earned on letters of credit established and for which settlement has not been effected shall be repatriated to the CBN for purchase at the bid rate at the time the funds were purchased.”

He said, effective from Monday, “the foreign net open position (NOP) of banks will be reduced from 10 per cent to five per cent.”

Soludo assured that the CBN remained committed to “Section 15(4) of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act of 1995, which guarantees unconditional transferability of funds in respect of loans and portfolios and foreign direct investments into Nigeria .”

Fielding questions from newsmen, Soludo argued that the meeting was not convened in panic as being rumoured in some quarters. According to him, “We needed to act decisively and take the kind of measures to bring back the stability of the market. . . Nigeria has enough foreign reserve to pay for up to two years. Even if we do not earn a penny, we have more than enough to pay for more than one year. Most countries do not even exceed six months.”

Soludo said the MPC had reviewed the developments in the foreign exchange market through Nigeria’s external reserves position and macro economic developments and found out that at the end of December 2008, the Gross Domestic Product (GDP) rate was 6.8per cent an impressive increase when compared to 6.2 per cent in 2007.

“It (MPC) is noted that the preliminary estimate of the GDP growth rate for the end of 2008 was an impressive 6.8per cent compared with 6.2per cent in 2007. It is also noted that inflationary pressure remained high throughout the year and provisional figures indicate that the end of December headline inflation was 14.6per cent while estimated core (non- food) inflation rate was at 9.2per cent ” he said.”

According to him, the meeting also reviewed the developments in the oil market as well as capital flows into the economy in 2008 and the prospects for 2009.


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