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The Central Bank of
Nigeria (CBN) has said the main thrust of its focus in the new year is
to ensure stability in the foreign exchange market.

Lamido Sanusi, the CBN governor, said the position held in 2010 would continue.

“We remain
committed to stability in the forex market. We are pleased that we had
stability last year,” Mr. Sanusi said in a text message. He added that
the bank has made its stance clear at the last Monetary Policy
Committee (MPC) meeting held on November 23, 2010.

At the end of the
meeting, the MPC expressed belief that the relative stability in the
foreign exchange market is likely to be sustained in the near term.

“The committee
would continue to monitor developments in the market to ensure that
measures are taken to eliminate speculative demand and exchange rate
volatility. The committee continued to urge greater fiscal
responsibility and commitment to reforms that will enhance the
effectiveness of monetary policy,” it stated in a communiqué.

The Central Bank
deployed massively from the country’s foreign reserves to maintain
foreign exchange stability in 2010. This led to its depletion, dropping
from $42.4 billion at which it opened the year, to $32.35 billion as at
December 31, 2010.

Dutch auction continues

The Central Bank also stated that it will continue to adopt the Wholesale Dutch Auction System (WDAS) in 2011.

In a circular to
all authorised foreign exchange dealers last December, it informed that
minimum bid amount by an authorised dealer at the bi-weekly auction
shall be $500,000.

Meanwhile, the
naira is expected to be under a short term pressure until the WDAS
auction resumes next week. Some experts, however, say they expect the
naira to correct itself once auction resumes. Central Bank carried out
its last auction on December 15.

“The Central Bank
carried out its last auction on December 15 and it would not be
returning to the market till January 8 so what we expect is see short
term pressure on the naira,” stated Renaissance Capital, an investment
banking firm.

“But we would
expect the currency to correct in the new year and possible inflow of
dollars by the oil majors. This is a cyclical process rather than
structural,” it added.

Bismarck Rewane,
managing director, Financial Derivates Company, a financial advisory
firm, however, said exchange rate stability would remain as the Central
Bank continues to intervene the naira using interest rates as anchor.

“The naira
maintained exchange rate stability throughout 2010, though it moved
with the acceptable limit of three percent (plus and minus),” Mr.
Rewane said.

He added that this stability was achieved at the expense of foreign reserves.

“Slight pressure on
the naira would continue, though our projection is for a rate on
N153-N154 per dollar by June 2011,” he said.