5 June 2012

Nigeria: CBN Raises Supply as Dollar Demand Persists

Specifically, data obtained from the banking sector regulator's website showed that supply of the greenback was raised by 20 per cent or $50 million, as it offered a total of $300 million to the 20 banks that participated at the first auction for the month, compared with the $250 million recorded last Wednesday.

As a result of the increased demand for the greenback observed at the forex market, the local currency was hurt at both the WDAS and the interbank.

At the WDAS, the naira slipped slightly by 5 kobo to close at N155.80 to a dollar, compared with the N155.75 to a dollar it was at the close of last Wednesday's auction.

But the pressure was felt more at the interbank market as data from the Financial Market Dealers Association (FMDA) revealed that the naira dipped by 93 kobo to close at N161.50 to a dollar yesterday, as against its Friday's value of N16.5 to a dollar.

But Nigeria's external reserves continued to climb higher as it stood at $37.688 billion as at May 31, 2011, it highest position this year.

According to some dealers, the local currency was under pressure as a result of strong dollar demand from fuel importers and investors who were repatriating dividends.

Vice President, Sub-Saharan Africa Economist, Renaissance Capital (RenCap), Yvonne Mhango, had told THISDAY that as we move to the second half of the year, the naira may come under pressure because of internal factors such as the resumption of fuel importation by some of the petroleum marketers.

"Some of them that held up importation in order for the whole subsidy issue to unravel have commenced importation and we are going to see increased demand for forex again. This could result into a slow-down in the build-up of the forex reserves.

"Secondly, in the global market, we have this head-wind from the European Union (EU), given the recent election of François Hollande in France and in Greece where the election holds this month. As a result of all these head-winds, we are seeing pressure on African currencies such as the South African Rand and the interbank rate of the naira," she added.

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