Articles

Increased Dollar Supply Strengthens Naira

24 Sep 2013

Views: 3,672

Font Size: a / A

B0506212-Dollar-notes.jpg - B0506212-Dollar-notes.jpg

 Dollar notes

By Obinna Chima


The naira appreciated significantly against the United States dollar at the interbank segment of the forex market  Monday, where it closed at N159.40 to a dollar.

The naira had closed at N161.20 to a dollar at the interbank last Friday. Dealers revealed that the performance of the nation’s currency was buoyed by the Central Bank of Nigeria’s (CBN’s) secondary market forex intervention, in addition to the sale of the greenback at the Wholesale Dutch Auction System (WDAS).

The CBN offered a total of $300 million to dealers at the WDAS yesterday, even as the naira maintained its value of N155.76 to a dollar. A total of 17 banks participated in yesterday’s auction.

The Monetary Policy Committee is expected to announce the outcome of its two-day meeting today.

The Ecobank Group argued in a report that in the immediate term, forex demand at the bi-weekly window is likely to fall by about 25 per cent.

This, it said, would likely reduce pressure on the naira and may lead to some moderate appreciation of the nation’s currency towards the upper end of the +/-3% band, to the N155/$1 level.

“CBN efforts to support the naira will be positive in the short-term, however, recent funding restrictions could be counter-productive by creating a liquidity squeeze and exposing some banks’ low liquidity levels.

“It could also undermine market confidence in expectations of what the CBN will do, which in turn could destabilise market development.”

However, Afrinvest Securities Limited in a report noted that given recent developments in the naira exchange rate space, “we are of the view that the naira will slide further in the near term towards N166/$1 in the interbank market by December 2013.”
According to the firm, a key contributor to the anticipated downward trend would be the seasonally waning oil receipts, due to the lingering oil theft. This, it argued, may be compounded by the yuletide as seasonal higher domestic demand fuels imports.

“In addition, foreign investors might exit positions to close their books for the year as well. While we expect mild stability come first quarter of 2014 supported by Foreign Portfolio Investments (FPIs) inflows, we are somewhat cautious due to the anticipation of a new CBN governor next June and upcoming elections in 2015.

“The inflow of foreign capital into the economy should constitute a buffer for the naira. Approximately $2 billion in form of FDI is expected to be injected in the economy through the power sector privatisation exercise. While this is expected to place more dollars in the coffers of the CBN, we also do not foresee significant near term upside effect on the naira,” the report stated.

According to Afrinvest, to reduce the pressure on the naira, an inward looking policy (tax incentives, infrastructure development and production subsidy) should be emphasised to reduce the dependence on imported goods.

Tags: Business, Nigeria, Featured, Dollar Supply

Comments: 0

Rating: 

 (0)
Add your comment

Please leave your comment below. Your name will appear next to your comment. We'll also keep you updated by email whenever someone else comments on this page. Your comment will appear on this page once it has been approved by a moderator.

comments powered by Disqus