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Naira falls on increased dollar demand

By on April 18, 2014

The naira weakened against the dollar on the interbank market Wednesday as a result of increased demand for the greenback as importers sought to meet their foreign exchange needs.

The naira closed at N162.30 to a dollar, weaker than the N161.75 it closed on Tuesday.

Traders informed Reuters that dollar supply from oil companies and offshore investors had dried up, leaving the market with less dollar liquidity in the face of increased demand from importers and others.

“There is no dollar inflow from oil companies while dollar demand coming from importers taking advantage of cheaper dollar put pressure on the available greenback in the market,” one dealer said.

The naira traded around N160.90 to a dollar last week, boosted by dollar inflows from oil companies and offshore investors buying local debt, prompting some users to increase their demand to hedge against future depreciation of the currency.
Traders said the naira could depreciate further to around N163 to a dollar if supply remains weak.

Interbank rate was steady on Tuesday, driven by increased market liquidity partly as a result of treasury bills repayments (primary market and Open Market Operations).
The Call and 7-day money market rates on Tuesday were 10.8 per cent and 11.1 per cent respectively.

The three-month NIBOR remained steady on 12.08 per cent, though less activity were done on the tenor.

The interbank secured lending (Open Buy Back) was also steady around 10.25 per cent on Tuesday.

Following the CBN’s MPC meeting of 25 March, the commitment to price and exchange rate stability was reinforced with the change to Cash Reserve Requirement (CRR) on private sector deposits to 15 per cent from 12 per cent, this was in addition to recent changes to CRR on public sector deposit and several other monetary policy efforts to indirectly tighten money market liquidity to support the naira.

“It is assumed that the GDP rebasing effort will help attract strong dollar inflows, and subsequently improve the naira’s short term outlook,” analysts at Ecobank Nigeria stated in a report yesterday

 

 

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