News Column

Naira Strengthens On Dollar Supply

April 24, 2014

The naira firmed against the United States dollar Wednesday as a result of the supply of the greenback by Chevron Nigeria while offshore funds bought local debt. The naira was trading 0.34 per cent higher at N161.60 to the dollar, compared to Tuesday's close of N162.15, according to Reuters.

Dealers said the local unit of US oil firm Chevron sold about $18 million to banks, while offshore investors participating in a debt auction on Wednesday sold an undisclosed amount of dollars.

The Central Bank of Nigeria auctioned N200 billion in treasury bills and bonds yesterday.

Offshore funds had renewed their appetite for Nigerian assets, dealers said, after the country rebased its Gross Domestic Product, overtaking South Africa as the continent's biggest economy and making it a more attractive destination for investors.

The interbank rate remained steady, but with slight volatility on Tuesday. Increased market liquidity partly driven by monthly statutory inflows, treasury bills repayments (Nigerian Treasury Bills and Open Market Operations), and a lower interbank funding requirement continued to stabilise the market.

The call/overnight and 7-day money market rates were: 10.9 per cent and 11.2 per cent respectively on Tuesday.

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

Following the CBN's 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.

The International Monetary Fund (IMF) in its 2013 Article IV Consultation and Staff Report on Nigeria, yesterday noted that the stable naira policy of the CBN has provided confidence to markets.

According to the IMF, pursuing exchange rate stability has worked well so far, contributing to bringing inflation down to single digits and also providing a conducive environment for investing in domestic government securities.

"Reserve buffers are deemed adequate-the current level of reserves (5.7 months of prospective imports) is close to the optimal level implied by standard metrics, but staff pointed out risks from medium-term oil price developments.

"The external sector assessment finds a moderate over-valuation of the naira in 2013, though caution is warranted given the quality of balance of payments data, in particular the size of errors and omissions (outflow of 3 percent of GDP in 2012)," the IMF added.

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Source: AllAfrica