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Naira Weakens at Central Bank Auction

By on July 13, 2011

Nigeria’s naira weakened at a central-bank auction today, snapping five straight increases as lenders demanded the most foreign currency in five sales.

The marginal rate, which is used as the prevailing exchange rate, fell to 150.08 per dollar compared with 150 at the previous sale, the Abuja-based bank said in an e-mailed statement. The bank sold $250 million, less than the $410 million demanded, the biggest amount sought since the June 27 sale. In the interbank market, the naira depreciated 0.4 percent to 152.4 per dollar by 4:08 p.m.

“High government spending is putting the naira under pressure,” Bismarck Rewane, managing director of Financial Derivatives Co., a brokerage, said by phone. “Speculative demand is expected, as dealers can buy at the central-bank auction at the current low price” while the rate in the black market is about 162 per dollar, he said.

President Goodluck Jonathan, who was returned to power in April elections, slashed almost 500 billion naira ($3.3 billion) off a budget adopted two months earlier, taking the final spending plan to 4.5 trillion naira.

The central bank of sub-Saharan Africa’s second-biggest economy and largest oil producer has been using foreign-currency reserves to keep the naira within a 3 percentage-point band above or below 150 per dollar at its twice-weekly auctions.

Foreign-currency reserves stood at $31.7 billion by July 4 compared with $37 billion a year earlier, according to central- bank data.

Source:Bloomberg