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Naira appreciates marginally with increased dollar supply

By on August 13, 2014

The naira appreciated slightly by 0.18 per cent against the United States dollar on the interbank market yesterday due to sale of the greenback by Shell to some lenders.

The local currency closed at N162.40 to the dollar, firmer than the N162.70 it closed on Friday.

Shell’s local unit sold an undisclosed amount of dollars to some lenders, boosting dollar liquidity and easing pressure on the local currency, according to Reuters.

Nigeria’s currency touched a five-week low against the US dollar last Thursday, on renewed dollar demand after a recent rally on the local currency.

Traders said some importers brought forward their obligations to take advantage of previous gains by the naira. Another dealer said if the NNPC fails to sell dollar by Wednesday, the naira could lose some value again.
Financial market analysts have stressed the need to diversify Nigeria’s revenue sources.

According to analysts at Afrinvest Securities Limited, the current over-reliance on oil receipts (oil receipts account for 96.8 percent of the country’s total exports) by the government poses a huge threat to the stability of the economy.

They warned that the persistent pressure on the naira could have been minimised if a counter cyclical fiscal policy was developed, as the CBN cannot continue to defend the naira with foreign reserves.

“To reduce this pressure, an inward looking policy (tax incentives, infrastructure development and production subsidy) should be emphasised to reduce the dependence on imported goods,” it argued.

Asides from oil receipts, the development of the agricultural sector would in the short term reduce the foreign exchange burden of food imports, it stated further.

On its part, the FSDH Merchant Bank Limited noted that the deliberate efforts of the CBN to achieve foreign exchange stability have ensured stability of the naira, as the naira has remained stable at N155.73/$1 at the official market since mid-April 2014.

The firm noted that the threats to the achievement of exchange rate stability in Nigeria in the short-to-medium term still emanates from the unwinding of the quantitative easing in the US, the low oil production in Nigeria, the security challenges in some parts of the country and the electioneering spending in the run-up to the 2015 general elections.

“Also, we reiterate that the risk of currency depreciation in the short-term is minimal due to the possibility of sustained price of crude oil above $100 per barrel in the international market,” it added.

 

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