Nigeria: Naira under foreign investor selling pressure

By IndepthAfrica
In News
Jun 6th, 2012
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Nigeria’s naira currency eased further against the dollar on the interbank market on Wednesday, to its weakest level since Dec. 29, as demand for the dollar outpaced supply, traders said on Wednesday.

The naira was trading at 163.05 to the dollar at 1047 GMT, weaker than the 162.56 it closed at on Tuesday.

Traders said the central bank is scheduled to sell $300 million at its bi-weekly auction on Wednesday, but there was no sign the regulator would sell additional dollars directly to the interbank market to calm the market.

“There is no major dollar flow into the market and the central bank has not intervened in the last four days. The market is short of dollars and the demand keeps mounting,” one dealer said.

The naira has fallen relentlessly in recent weeks, despite central bank interventions to prop it up, driven initially by dollar demand from fuel importers but later by an exodus of foreign investors out of bonds repatriating their returns.

Higher inflation and signs of currency weakening have scared foreign investors off, dealers say.

“Offshore investors have been the major support for the naira in the past, now most of them are selling off their local debt and exiting the market, taking away support for the local currency,” another dealer said.

Foreign exchange reserves hit a 21-month high of $37.64 billion by May 28, which could give the central bank some flexibility to defend the naira in the coming days. The bank still maintains its target band of between 150 and 160 naira to the dollar.

Analysts expect the interbank rate for the naira to remain as low as 163 to the dollar for the rest of the year, which could force the bank to re-adjust its target band for the naira to accommodation. Reuters

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