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Naira records highest gain in 18 months

By on June 18, 2013

The naira recorded its highest gain in 18 months on Monday, snapping four days of decline as the Central Bank of Nigeria sold $300m in its Wholesale Dutch Auction System market.

The currency strengthened by 1.6 per cent to N160 per dollar in Lagos, its biggest gain on a closing basis since December 26, 2011, data compiled by Bloombergindicated.

The CBN sells dollars at auctions on Mondays and Wednesdays to support the naira and occasionally offers currency directly to lenders to reduce demand.

The naira retreated by 1.9 per cent last week, the worst five-day drop since December 26, 2011.

An analyst at Ecobank Transnational Incorporation, Mr. Kunle Ezun, said, “Besides the regular forex auction, the CBN sold dollars directly to some banks, which helped to strengthen the naira.”

The external reserves have remained stagnant at N48bn for over three months, according to statistics obtained by our correspondent.

It was also gathered that the CBN had been defending the naira with the external reserves.

The reserves, which stood at $48.47bn on Monday, hit the $48bn mark on March 11, 2013, and had been up and down within the mark.

According to financial analysts, the domestic oil output has been negatively affected by several disruptions such as pipeline vandalism, bunkering and declaration of force majeure by oil companies.

Financial Derivatives Company Limited, in its monthly publication, warned that a further decline in global oil prices to $90 per barrel would be devastating for the Nigerian economy, as the reverberations of the shocks would hamper any form of growth across all sectors of the economy.

FDC said, “As the value of the naira falls towards N165 to a dollar at the parallel market, and the likelihood for capital flight increases, external reserves will be depleted by about $10bn to $15bn from the current level of $48.5bn.

“The resultant $33.5bn to $38.5bn will only cover an average of eight months of exports, which may lead to increase in the country’s borrowing.”

The National Bureau of Statistics said on Sunday that Nigeria’s inflation rate fell to nine per cent in May from 9.1 per cent in April.

The CBN held its benchmark interest rate at a record 12 per cent for the 10th consecutive meeting of the Monetary Policy Committee on May 21, to check inflation and stabilise the naira.

An analyst at Vetiva Capital Management Limited, Mr. Adedayo Idowu, was quoted by Bloomberg as saying, “We see the risks to 2013 inflation as fairly balanced with headline inflation to average 9.2 per cent.”

Yields on Nigeria’s $500m Eurobonds due January 2021 rose by seven basis points to 5.32 per cent. Borrowing costs on local currency debt due January 2022 fell six basis points to 13.87 per cent on June 14.