Naira notes

By Obinna Chima

The naira, which had been under pressure in the past few days due to intense demand for the United States dollar, was cheerful yesterday.

This was attributed to the increase of the amount of dollar offered by the Central Bank of Nigeria (CBN) at the Wholesale Dutch Auction System (WDAS) as well as the regulator’s intervention at the interbank market.

THISDAY checks showed that the apex bank increased its supply of the greenback by $100 million or 33 per cent as it offered a total of $400 million to the 18 banks that participated in the auction.

Consequently, the naira appreciated by 71 kobo to close at N162.97 to a dollar at the interbank yesterday, compared with the N163.68 to a dollar it stood on Tuesday, data from the Financial Market Dealers Association (FMDA) showed.

But the local currency was stable at the WDAS as it closed Wednesday at N155.90 to a dollar, same value it was at the end of Monday’s auction.

THISDAY findings Wednesday showed that Nigeria's forex reserves fell further as it reduced slightly by $21 million to close at $37.626 billion as at June 12; compared with the $37.647 billion it was the previous week.

Renaissance Capital (RenCap) had said that the drop in oil price may pose some risk to the Nigerian economy if the trend continues. In fact, the international financial advisory and investment had expressed concern on whether the federal government would be able to meet its oil revenue target.

It added: “While export earnings are very responsive to changes in the oil price because they are simply a product of the price and volumes exported, oil GDP is calculated from estimating the value added in the oil sector, implying that oil production is of greater significance for GDP and price less so.

“We believe the decline in the oil price will indirectly affect monetary policy through inflation. The fall in the oil price will translate into a smaller current account surplus, which implies a slowdown in forex reserves and naira weakness.

“A depreciating naira will raise inflationary pressures, particularly as imported inflation rises. 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.