The Naira yesterday weakened further to a 22-week low against the United States dollar at the interbank market following strong demand that the Central Bank of Nigeria (CBN) could not meet at its foreign exchange auction the previous day, traders said.
The naira eased to N163.68 against the dollar on volatile trades at the interbank market yesterday. It had closed N162.95 to the dollar on Monday.
The central bank sold $300 million at N155.90 naira to the dollar on Monday, without meeting demand for the U.S. currency, dealers said, and lower than the 155.84 naira it sold the greenback at its last auction last Wednesday.
The bank did not disclose the amount of dollar demand at its window.
"The demand for the U.S. dollar was not being met at the central bank window. So we have all the oil importers as well as foreign investors exiting short term government securities and exerting pressure (on the naira)," one dealer told Reuters.
"These two pressures are basically why the naira is weakening," he told Reuters.
Stuart Culverhouse, a chief economist at London-based brokerage firm Exotix, said heightened risk aversion across global markets and concerns about global growth particularly in the Eurozone, meant foreign investors were pulling out from frontier markets into safe havens.
"Nigeria has been impacted ... that has caused some investors to exit the T-bill market," he said, adding that his firm had a buy recommendation on Nigeria 6-month treasury bills yielding 16 per cent.
Proceeds from oil sales, which go through the central bank, are the main source of dollar liquidity. Foreign oil firms operating in the country also sometimes exchange dollars at the interbank for naira to run their day to day operations.