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Naira Depreciates As Inflation Concern Slows Inflows

By on July 2, 2012

The naira weakened against the dollar as concern inflation may accelerate slowed inflows and as oil, the country’s key export, retreated.

The currency of Africa’s biggest oil producer fell as much as 0.4 percent in the interbank marketand traded 0.1 percent lower at 162.55 per dollar by 3:10 p.m. in Lagos, according to data compiled by Bloomberg. The naira is down 0.3 percent this year, after being Africa’s best-performer against the dollar in the first five months.

While inflation slowed to 12.7 percent in May from 12.9 percent in April, the rate is set to peak at 14.5 percent in the third quarter, the highest since April 2010, according to the Central Bank of Nigeria. Policy makers have held the benchmark interest rate at 12 percent this year to curb the naira’s decline and combat inflation, after raising it by 5.75 percentage points in 2011. The nation’s benchmark bonny light crude fell to $97.32 a barrel today, from $128.47 on March 13.

“While seasonal month-end sales should provide support to the naira over the next few days, dollar liquidity is expected to dwindle as investors continue to shy away from the domestic capital market amid concerns over rising inflation and a potential slump in the oil price,” Celeste Fauconnier and Nema Ramkhelawan-Bhana, strategists at Rand Merchant Bank, wrote in a report today.

Nigeria sold 84 billion naira of bonds ($515 million), including 30 billion naira of debt due 2017, with bids down 13 percent for that maturity to 55.84 billion naira, according to the debt management agency.

Auctions

The central bank sold $350 million at a foreign-currency auction today, matching the amount sold on June 27, at 155.94 naira per dollar, the Abuja-based bank said in an e-mailed statement. The regulator sold $700 million at auctions last week in efforts to support the naira. The oil industry, which sells dollars to lenders around the month-end to meet local expenses, is the second major supplier after the central bank.

The yield on Nigeria’s domestic 15.1 percent bonds due 2017 rose 14 basis points to 16.19 percent, according to June 29 data on the Financial Markets Dealers Association website. Yields on the nation’s $500 million of Eurobonds due 2021 fell three basis points to 5.55 percent today.