The naira weakened to a 22-week low against the United States dollar on the inter-bank on Tuesday, following strong demand for the greenback that the Central Bank of Nigeria could not meet at its foreign exchange auction the previous day, traders said.

The naira eased to N163.68 against the dollar on volatile trades at the inter-bank market on Tuesday. It had closed N162.95 to the greenback on Monday.The CBN sold $300m at N155.90 to the dollar on Monday, without meeting demand for the US currency, lower than the 155.85 naira it sold the greenback at its last auction on Wednesday.

The bank did not disclose the amount of dollar demand at its window.

Reuters quoted a dealer as saying, “The demand for the US dollar is not being met at the CBN window. So we have all the oil importers as well as foreign investors exiting short term government securities exerting pressure on the naira. These two pressures are basically why the naira is weakening.”A Chief Economist at London-based brokerage firm Exotix, Mr. Stuart Culverhouse, said heightened risk aversion across global markets and concerns about global growth particularly in the Eurozone, meant foreign investors were pulling out from frontier markets into safe havens.

Proceeds from oil sales, which go through the CBN, are the main source of dollar liquidity in Nigeria. Foreign oil firms operating in the country also sometimes exchange dollars at the interbank for naira to run their day to day operations.

Following continuous decline in the value of the naira, currency dealers have said that the local currency may soar to N163 this week.The dealers said on Monday after trading that, “the naira is expected to hover around N163.” The naira has come under pressure in the past month from foreign investors exiting government bonds to repatriate their returns and from local importers demanding dollars.Traders said dollar demand from foreign investors exiting the debt market could ease after the local unit of a major international bank repatriated $100m proceeds from bond sales last week, adding that most of the other funds had left.

Source: Punch