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CBN’s intervention, dollar sales to boost naira

By BusinessNews Staff on June 24, 2014

Foreign exchange dealers expect the naira to strengthen on the heels of dollar sales from some oil companies and possible direct intervention by the central bank this week.

The currency had closed at N160.90 to the dollar on the interbank market on Thursday, up from N163.10 the previous day.

According to Reuters, African currencies are likely to hold up against the dollar this week as companies make domestic tax payments, with only Ghana’s struggling cedi seen bucking the trend after touching fresh three-year lows on Thursday.

Ghana’s cedi is expected to be the outlier among regional currencies, weakening further as importer demand continues to far outweigh dollar supply.

The local currency has slumped nearly 30 per cent since January and hit a three-year low of 3.0700/3.1000 on Thursday.

“We expect the current trend to continue in coming weeks because there is still a huge demand for the dollar that, neither commercial banks nor the central bank can meet,” a local dealer said.

“There is no liquidity, so interbank trading is virtually shut down.”

The Bank of Ghana had last Friday reversed restrictions it had imposed in February on foreign exchange transactions to try and halt the cedi’s slide, but the International Monetary Fund said this would be ineffective unless Accra resolved macro-economic imbalances.

The bank also said it would ask the government to direct mining and oil firms to operate retention accounts in Ghana to boost foreign exchange inflows.

Kenya’s shilling is expected to stay supported after Nairobi successfully launched its debut $2bn Eurobond, which a National Treasury official said attracted bids worth $8.8bn.

Commercial banks quoted the shilling at 87.30/50 to the greenback on Thursday, up from 87.80/90 a week ago.

“The shilling will strengthen, but it will be very gradual, because there would be a lot of end-month importer demand also picking up from next week,” Andlip Nazir, a senior trader at I&M Bank, said.

Traders expected the central bank to intervene should the shilling weaken past 88.20, while gains were seen capped at 87.20.

The Ugandan shilling was seen trading in a stable range as companies paid their taxes in the local currency, keeping a lid on demand for dollars.

The shilling traded at 2,570/2,580 at 1050 GMT, weaker than last Thursday’s close at 2,555/2,565.

“I don’t see the shilling breaking out of the 2,550-2,580 range in the short term,” said Faisal Bukenya, head of market making at Barclays Bank.

Traders expected the Tanzanian shilling to gain some ground in the days ahead, helped by greenback sales by corporates to meet quarter-end tax obligations.

Commercial banks quoted the shilling at 1,684/1,689 to the dollar on Thursday, stronger than 1,685/1,695 a week ago.

“I think dollar demand will keep shrinking as we are approaching the end of the quarter,” said Hamisi Mwakibete, head of trading at Commercial Bank of Africa, Tanzania.

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