Naira depreciates further

The naira touched a new all-time low in the inter-bank market and weakened at the central bank’s official window yesterday It depreciated to N167.40 against the dollar in the inter-bank market initially before recovering to close at N164.30, down by 4.2 per cent from Friday’s close of N160.10. Optimism that monetary tightening decisions will help lift the naira were outweighed by the widening gap between dollar supply and demand, which the central bank can’t breach.

CBN sold $400 million at N156.91 to the dollar at its bi-weekly foreign exchange auction on yesterday, short of the $736.94 million demanded and at weaker levels than at the official window last week. The naira has lost 8 per cent of its value in less than two months due to an increase in dollar demand and a dampening of risk appetite on worsening global economic conditions. Minister of State for Finance Yerima Ngama said yesterday said interest rates had to rise to make government instruments more attractive and to support the naira.

However, the local currency had bounced on Friday after the central bank announced it would ban some oil-companies from buying dollars at its auction and announced the interest rate meeting. But the rally was short-lived. “The market simply reacted to the outcome of the forex auction,” one dealer said.

“The situation is being compounded by the lack of fresh dollar inflows from oil companies with some banks holding on to their position,” said another. The naira’s decline steepened this month after the central bank broke its rule of only selling dollars at its bi-weekly auction within a 3 percent band around 150 naira to the dollar, a system designed to stabilise forex trading. It has now sold dollars outside the weakest boundary of the agreed band at its last three auctions.

CBN Governor Lamido Sanusi said last week it would be better to wait and see if the weakening was temporary before thinking about officially changing the band, although some analysts believe an adjustment is inevitable sooner or later. Government bond yields with Nigeria’s longest tenure, the 20 year paper were hit the most on Monday. The 20 year bond opened at 13.8 percent on Monday from Friday’s close of 13.1 per cent. Dealers were not showing quotes for 3-year maturities while interbank lending rates were steady.