The Central Bank of Nigeria (CBN) has announced a 52 per cent increase in the demand for foreign exchange by end users in the country under the apex bank's Wholesale Dutch Auction System (WDAS).
The aggregate demand put at $383.35 million, the CBN said, represents an increase of 52.0 per cent over the level in the preceding week.

It attributed the observed increase to the liquidity surfeit in the domestic economy. Consequently, the bank explained in its weekly bulletin that actual amount of foreign exchange sold increased by 69.0 per cent over the level in the previous week to $347.35 million during the week ended June 8, 2007.
The bank also announced that the average number of participating banks increased from 13 in the week ended June 1, 2007 to 17 during the week under review. Similarly, the average number of successful banks also increased from 12 to 17 during the week under review.

On the naira movement, the apex bank said despite the pent-up in the demand for foreign exchange, the average effective exchange rate appreciated marginally by 0.01 per cent over the level in the preceding week to N127.48 per dollar in the week ended June 8, 2007.
The average weighted effective exchange of the naira remained at N127.49 per dollar, the same as in the previous week end.

At the bureau de change segment of the market, the naira traded at an average exchange rate of N128.68 per dollar, reflecting an appreciation of 0.3 per cent over the level in the previous week.
Consequently, the premium between the official and bureau de change rates narrowed from 1.2 per cent in the week ended June 1, 2007 to 0.9 per cent during the week under review.
In a related development, the inter bank interest rates this week dropped by 20 per cent in response to the reduction in Monetary Policy Rate (MPR) by the CBN.

The apex bank had last week reviewed downward the MPR by 200 basis points to 8.0 per cent from 10 per cent. Similarly, CBN reduced the interest rate corridor in the lowest and highest band of the MPR from 300 points to 250 points.

This resulted to a lower limit of 5.5 per cent and highest of 10.5 per cent, and prompted interest rate on the deposit facility offered to banks by the CBN to stand at 5.5 per cent while that of the lending facility would be 10.5 per cent, making a drop by 7 and 13 per cent respectively.

This policy announcement equally prompted a sharp drop in cost of funds in the interbank market with interest rate on overnight placement and Open Buy Back (OBB) lending falling from 7.05 per cent on Wednesday to 5.6 per cent at the close of business over the weekend.

Also, interest rate on government securities experienced marginal interest rate on 91 day tenured securities, falling to 7.0 per cent form 7.145 per cent.
Interest rate of 122 days securities fell from 7.6 per cent to 7.225 per cent, while interest rate on 364 days securities dropped to 7.79 per cent to 8.6 per cent.

Source: Guardian