The naira weakened against the United States dollar on the inter-bank market on Monday, on strong demand by some banks filling their customers’ needs for dollars, as dollar liquidity gradually dries up in the market.

The naira closed at N157.90 to the dollar compared with the N157.30 to the dollar on Friday.

Currency traders said the naira eased to N158.35 intra-day before it finally settled at the N157.90 level, at the close of the market.

One of the traders said the Central Bank of Nigeria was not meeting all demands for dollars at the auction, while more customers were resorting to the inter-bank to fill their needs.

The naira has performed well against the dollar since the start of the year, largely driven up by offshore investors into local debt instruments, which currently offer attractive yields.

Reuters quoted a dealer as saying, “We expect that the naira will rebound this week on speculation that there is a plan by the Nigerian National Petroleum Corporation to sell around $300m to fill the market.”

Meanwhile, the CBN sold $150m at the bi-weekly auction at N156.06 to the dollar, compared with $150m sold at N156.01 to the dollar at the previous auction on Wednesday.

Inter-bank lending rates fell further last week to an average of 14.25 per cent compared to the previous week’s 14.41 per cent after additional cash inflows from the excess crude account disbursal hit the market.

Currency traders said rates would have been lower but for the outflows into treasury bills sales at the open market operation and the withdrawal by the NNPC, which drained liquidity from the system in the week.

The market opened with a cash balance of about N67bn naira on Friday, reflecting gradual drain in liquidity in the system after the NNPC cash withdrawal.

NNPC sold about $450m to some lenders last week, and recalled a portion of the naira proceeds to its account with the CBN as part of statutory requirement and move to reduce excess liquidity in the system.

Traders said cost of borrowing among banks should inch up this week because of further withdrawal by the NNPC and outflows into foreign exchange purchase.

Source: Punch