Declining Appetite for Dollar Strengthens Naira

06 Aug 2013

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Dollar notes

Obinna Chima

The naira appreciated against the United Dollar across the various forex market segments as a result of the decreasing demand for the greenback.

Specifically, at the Central Bank of Nigeria (CBN) regulated bi-weekly forex auction, the demand for the dollar further dropped as the central bank sold a total of $285 million, out of the $300 million that was offered to dealers.

Therefore, the naira improved slightly to N155.75 to a dollar yesterday, as against the N155.76 to a dollar it stood last week. Also, at the interbank market, the naira leapt by 17 kobo to close at N160.02 to a dollar Monday as against the N160.19 to a dollar it attained last Friday.

However, the nation’s currency improved significantly at both the bureau de change (BDC) and parallel market segments as it closed at N161.50/$1 and N160/$1 respectively, from N162.50/$1 and N163/$1.

Following the increase of the cash reserve requirement (CRR) for public sector funds to 50 per cent, currency analysts had predicted  the naira would appreciate by about three per cent in the short-term. The implementation of the monetary policy committee decisions would take effect from tomorrow.

Commenting on its outlook for the forex reserves and the naira, the Ecobank Group, in a recent report titled: “Nigeria – Our Insight,” explained the naira was managed in line with the dollar, given that oil exports that account for over 90 per cent of total exports, are priced in dollar.

The report also stated that the naira exchange rate continued to be determined through the WDAS, which allows for a degree of flexibility in the event of an economic shock.

“Nigeria sources around 80 per cent of the goods it consumes from abroad, mainly from the European Union, the United States and China. Moreover, the government’s growing investment drive to improve infrastructure will increase import demand for capital goods and this, along with our expectation of a monetary policy easing in second half of the year, would undermine the naira,” it added.

Meanwhile, various tenor of the Nigerian Interbank Offered Rates (NIBOR) maintained their upward trend yesterday as banks await effect of the CRR hike on the market.

Data from the Financial Market Dealers Association showed that the Overnight, 7-day, 30-day, 60-day, 90-day, 180-day and 365-day tenors respectively closed higher at 10.92 per cent, 11.83 per cent, 12.17 per cent, 12.25 per cent, 13.08 per cent, 13.37 per cent and 13.75 per cent in that order.