Monday, 27 Sep 2010

 

The naira depreciated to its lowest level in more than a year versus the dollar on speculation that companies stepped up dollar purchases to repatriate profits and buy imported goods.

 

 

It slumped as much as 0.7 per cent to N154.8 to the dollar, the weakest intraday level since August 25, 2009, and traded 0.1 per cent lower at N153.90 by 2:31p.m, from a previous close of N153.72, Bloomberg reported from Lagos on Friday.

 

 

Nigeria‘s economy ”is import dependent and at this time of the year, demand for foreign currency is normally high as companies increase importation to prepare for the end of the year sales,” an analyst with the Lagos-based Source Capital Nigeria Limited, Mr. Kwekwu Brown, said in a telephone interview.

 

 

The Central Bank of Nigeria failed to meet the demand for dollars by lenders for the sixth consecutive session at its foreign exchange auction on September 22, selling $400m as lenders demanded $646.2m.

 

 

Nigeria, Africa‘s top oil producer, depends on oil exports for more than 95 per cent of its foreign exchange income, the source of funding for the central bank’s foreign-currency auctions.

 

 

The country‘s oil revenue declined, as crude oil prices plunged from record highs reached in July 2008.

 

 

”Nigeria‘s currency is potentially unstable since the inflow of foreign exchange depends on oil exports and the value of the currency would always fall when oil prices drop,” Brown said.

 

 

The country‘s foreign reserves currently stand at $36.6bn on September 13, compared with a high of $58.3bn in March 2008.

 

 

The central bank increased its benchmark interest rate by a quarter of a percentage point on September 21 to curb a pickup in inflation after the annual rate accelerated to 13.7 per cent in August from 13 per cent in July.

 

 

Reuters from Lagos also quoted a dealer as saying that,”The failure of the central bank to meet all demand at its bi-weekly auction this week has created uncertainty in the market and this is fuelling demand for the dollar.”

 

 

Traders, according to Reuters, maintained that the outlook for the naira next week would depend on the extent of month-end dollar sales by some energy firms, including the state-run Nigeria National Petroleum Corporation, and whether the central bank increased the dollar supply at its auction on Monday.

 

 

(Source: Punch)