14 February 2013

Nigeria: Naira Steady As CBN Cuts Dollar Supply

The naira maintained its value of N155.74 to a dollar at the end of yesterday's auction at the bi-weekly forex market.

The local currency has been at that rate at the regulated Wholesale Dutch Auction System (WDAS) since January 30.

Data obtained from the Central Bank of Nigeria's (CBN's) website also showed that the bank reduced its supply of the greenback by 50 per cent as it sold a total of $120 million to the 17 banks that participated in the auction, compared to the $180 million sold at Monday's auction.

However, at the interbank arm of the forex market, the naira leapt marginally by five kobo to close at N157.30 to a dollar yesterday, compared to the N157.35 to a dollar it attained on Tuesday, data from the Financial Market Dealers Association (FMDA) showed.

Renaissance Capital's Sub-Saharan Africa Economist, Yvonne Mhango, argued that the country's exchange rates in a much stronger position today than it was about a year ago as a result of the buildup of reserves by over $12 billion.

Nigeria's external reserves stood at $46.480 billion as at February 11, according to the CBN. This, according to Mhango can cover months of import.

"So in terms of restoration of stability of the exchange rate, I think we are in a stable position in 2013 compared to where we were about a year ago. So, our outlook is positive. Of course there are risks. The Monetary Policy Committee (MPC) is still concerned about the global environment particular the external shocks that results in the oil price dropping.

"So the risk of course continues to be the oil price. But given the buffer the country has built up, the CBN is in a stronger position to keep exchange rate stable," she added.

Analysts at Ecobank Group, Kunle Ezun and Kenneth Asenime, in a joint report yesterday, pointed out that the recent strengthening of the naira was largely due to dollar supply from state-owned agencies as well as robust capital inflow into government securities (following the CBN's decision to hold the Monetary Policy Rate unchanged at 12 per cent in January).

"More so, the CBN increased the volume of dollar at the twice-weekly forex sale to meet rising dollar demand. However, expectations that the President will soon sign the 2013 Budget bill (that will open spending on various capital projects), and assumption of $1-N160 in the budget could increase liquidity, thereby bringing the naira under pressure," they forecast.

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