News Column

Naira Drops Marginally On Increased Dollar Demand

July 22, 2014

Obinna Chima

The naira eased 0.21 per cent against the United States dollar yesterday after some importers took advantage of its recent appreciation against the greenback to lock in rates, dealer said.

The local currency eased after last week's gains, closing at N162.25 to a dollar yesterday after closing at N161.90 a dollar last Friday.

Dealers informed Reuters that some importers had set limit orders to buy hard currency and were in the market after recent gains. Italy's local unit of Eni sold $11.5 million, but that was not enough to lift the naira.

Africa's biggest economy relies on imports for around 80 per cent of what it consumes.

"We expect the naira to strengthen this week because of possible dollar sales by some oil multinational companies," one dealer said.

Oil companies in Nigeria sell hard currency to obtain naira to fund their local obligations. The local currency traded around N161.45 to N161.90 to a dollar last week, lifted by dollar flows from oil companies and offshore investors buying local debt.

The Monetary Policy Committee (MPC) would announce the outcome of its 239th meeting today.

Afrinvest Securities Limited had pointed out the increasing need to diversify the country's revenue sources.

The investment and research firm noted that 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.

It argued that the persistent pressure on the naira could have been minimised if a counter cyclical fiscal policy is developed, saying 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.

"Asides from oil receipts, the development of the agricultural sector will in the short term reduce the foreign exchange burden of food imports and over the long term enhance foreign receipts if its comparative advantage in the sector is efficiently deployed," it added.

It stated that a review of the economies of other oil dependent countries (Middle East and North Africa) showed that countercyclical fiscal policies were key to subduing the "oil curse" of periodic instability and slow development.

"The Nigerian government should work towards a longer term commitment to benchmark oil prices, as against the current yearly debates and bargaining that surrounds budget preparation. In addition, emphasis should be geared towards the diversification of the foreign receipts base of the economy.

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Source: AllAfrica

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