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Naira Strengthens as Rising Foreign Reserves Boost Confidence

By on May 2, 2012

Nigeria’s naira is heading for a week high against the dollar as the country’s foreign reserves increase, adding to confidence that the central bank can maintain currency stability.

The naira strengthened 0.1 percent to 157.32 per dollar as of 11:29 a.m. in Lagos, the commercial capital. The currency has advanced 3.2 percent this year versus the dollar.

The foreign currency reserves of Nigeria, Africa’s biggest oil producer, have advanced 11 percent this year to $36.5 billion, according to April 27 central bank data, as the government partially reduced a fuel subsidy in January and as the West African nation’s benchmark Bonny Light crude gained 9 percent over the same period.

“The partial removal of the subsidy partly explains the $4.1 billion increase in foreign reserves year-to-date to $36.5 billion and naira stability, compared with 2011’s depreciation trend,” Yvonne Mhango, an economist at Renaissance Capital in Johannesburg, wrote in a note to clients today.

Borrowing costs on Nigeria’s $500 million of Eurobonds due 2021 fell 13 basis points, or 0.13 percent, to 5.398 percent, according to data compiled by Bloomberg. Yields on Nigeria’s naira bonds due in 2015 were unchanged at 15.06 percent, according to April 30 data on the Financial Markets Dealers Association’s website.