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Interbank market trades volume of $32m

…As CBN participates in FX market for fifth day

The Central Bank of Nigeria (CBN) on Monday again participated in the foreign exchange market to boost liquidity, through bid-offer quotes from currency traders, as it sold dollars on the interbank market, traders said. The apex bank has been participating in the interbank market since the commencement of the new FX regime on 20th of June, exactly a week yesterday, which it has explained as an effort to ensure ongoing activity in the new FX market. Although, as at the time of filling this report, we could not ascertain the total amount the apex bank traded on Monday, but the interbank market sold a total volume of $32 million just before the market closed, which traders attributed to central bank's participation. The bank abandoned the 16-month old exchange pegged on the naira recently and has been selling dollars at an auction to clear a backlog of demand and keep markets lively.

However, the market closed on Monday, with the nation’s currency exchanged at N282 per US Dollar, after the apex bank intervened, but the naira dropped a point (N1), a slight difference from the N281/$1 the market closed on Friday. The inter-bank market opened at 0800 GMT with no activity for more than three hours. Forex traders said they had tightened the differential between bids and offers to 0.5 naira from one naira set when the currency was floated last week. "Liquidity is still relatively thin," one trader said, adding that clients were waiting to see where the naira settles eventually before they start to participate in the market. Nigeria ditched the peg on the naira to allow the currency to trade freely on the interbank market but thin liquidity has hampered activity, traders say, leaving the central bank as the main supplier of hard currency. Prior to old exchange rate peg, the currency market traded on 0.5 naira spreads, they said. Nigeria's interbank market has traded for six days after the CBN forex reforms. Traders are expecting substantial currency flows from oil companies and exporters to start to trickle in from this week, they said. Meanwhile, Nigerian shares fell on Monday as local funds sold on concerns that Britain's vote to leave the European Union may slow foreign interest in the market, traders said.

The main stock index shed 2.2 percent to 29,982 points by 1252 GMT, dragged down by banking shares, which fell 3.7 percent while consumer and oil stocks each fell 2.1 percent. Nigeria's stock market rallied more than 8 percent last week, fuelled by investors hoping that a central bank reform to interbank currency trading would lure back foreign funds. However, Britain's decision to leave the EU in last Thursday's referendum has sent further shockwaves through financial markets on Monday, despite efforts by the country's leaders to bring calm. The biggest fallers on the Lagos bourse were FCMB Group which shed 8.33 percent, while Zenith Bank and Guinness Nigeria were each off by 5 percent.

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