The naira which had been under pressure against the United States dollar at the interbank market was upbeat Monday.
Dealers attributed the development to sale of an undisclosed amount of the greenback at the interbank segment of the market by the Central Bank of Nigeria (CBN), which helped to calm the market.
Specifically, data from the Financial Market Dealers Association (FMDA) showed that the naira appreciated by N1.68 to close at N161.50 to a dollar, compared with the N163.48 to a dollar it stood as at Friday.
There were also expectations that the Nigerian National Petroleum Corporation (NNPC) would sell dollar in the market today (Tuesday) and that is expected to further strengthen the local currency.
On the other hand, at the CBN regulated bi-weekly auction, the naira was stable yesterday as it maintained the N155.90 to a dollar it was last Wednesday.
The apex bank also maintained the volume of greenback it offered to the market as it once more, supplied a total of $400 million to the 18 banks that participated in the auction.
Managing Director/Chief Executive Officer, Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, had said that the recent decline in oil prices would put pressure on both the local currency and Nigeria's forex reserves.
He added: "The question however is how vulnerable are Nigeria's external reserves, should oil prices drop further, for example, to a low of $80 per barrel? The Federal Government's budget is benchmarked to oil price at $72 per barrel, while Bonny Light crude is trading at $98 per barrel. This is a variance of $26 per barrel. At the current rate of decline, we expect forex inflows to fall from $4.31 billion in January to $3.34 billion in July.
"If oil prices were to drop to $80 per barrel (which is 50 per cent likelihood based on current trends), there is a 95 per cent likelihood that forex inflows will decline to approximately $3.03 billion."
Similarly, Renaissance Capital had warned that decline in the oil price would indirectly affect monetary policy through inflation and may translate into a smaller current account surplus for the economy. The firm had also said that a depreciating naira would raise inflationary pressures, particularly as imported inflation rises.
The National Bureau of Statistics (NBS) is expected to release inflation figure for May today.
"We think an increase in inflation expectations will increase the risk of the CBN's upper forecast band of 14.5 per cent being breached. We are of the view that the CBN will be compelled to raise the policy rate, from 12 per cent by about 100 basis points before the end of 2012," it added.