Nigeria Content Online

As
the Central Bank of Nigeria (CBN) struggles to defend the naira, the
currency is gradually shedding weight at the currency market.

The
naira, which opened 2011 at N149.50 to the dollar, closed yesterday at
the bi-weekly Wholesale Dutch Auction System (WDAS) at N152.58, a
decline of 2.1 per cent.

The CBN has always maintained that the naira would be kept within the +/-3 per cent band.

CBN
governor, Lamido Sanusi, at the last Monetary Policy Committee (MPC)
meeting held in Abuja emphasised stable foreign exchange to curtailing
inflation.

“The
committee urged the CBN to continue to pursue the strategy of
maintaining exchange rate stability to contain inflation,” Mr. Sanusi
said in his statement at the end of the bi-monthly meeting.

Not meeting demand

At
the previous auction on Monday, the CBN was only able to meet about 71
per cent of demand, supplying $250 million out of the $351.12 million
demanded.

At
yesterday’s auction, the CBN sold $300 million, just 67.6 per cent of
actual demand. Dollar demand at the WDAS declined by 9.3 per cent last
week compared to an increase of 11.3 per cent the previous week,
fuelling concerns that apprehension over the general elections
triggered speculative demand for the green back. At yesterday’s
auction, the CBN sold $300 million.

The
naira closed last week at N151.91, its lowest level this year before
firming up at Monday’s auction, due to complementary supplies from
major oil marketers. The value remained unchanged yesterday. The CBN
has sold $1.25 billion in the two weeks in April, compared to $750
million sold in the comparable period of last year.

“It is the elections,” said Suleyman Ghali, a currency dealer in Lagos.

He said the demand for dollar has dropped this week compared to the period before the elections.

“The
politicians are concentrating on the elections now, so demand has
reduced. We do not know what will happen after the election but we are
watching. The naira is a bit stable,” Mr. Ghali said.

He said the naira is fluctuating between N156 and N157 at the parallel market.

Analysts
at Afrinvest West Africa Limited, a Lagos based investment banking
firm, had forecast that the demand will fizzle out this week.

“As
the liquidity continues to tighten in the money market, we do not
expect strong demand for the dollar in the coming week,” it reported in
its weekly report.

Tightening liquidity

The CBN based its decision to tighten liquidity on the need to rein in the expected huge election spending.

“The
members specifically pointed out the rising international food and
energy prices, the impact of import costs on domestic prices, the
challenges that fiscal stance posed to the external value of the naira,
and the likely front-loading of public expenditure in the election
period,” Mr. Sanusi said.

Analysts
at Sterling Capital Market Limited, an investment banking firm,
however, said the ability to continue to defend the naira would depend
on build-up in the foreign reserves.

“Increase
in foreign reserves will further help CBN to defend the naira, while
the sale of $200 million by NNPC will boost supply in the inter-bank
market during the week,” it stated.

Nigeria’s foreign reserves dropped to $34.5 billion on Tuesday from $34.9 billion last week.