Sanusi: Nigeria Comfortable with Naira-Dollar Exchange Rate

Written by This Day Saturday, 03 July 2010

Nigeria is comfortable with the current exchange rate of the naira in relation to the US dollar and believes the naira is unlikely to come under pressure, with foreign reserves capable of funding 17 months of imports, Central Bank of Nigeria governor, Sanusi Lamido Sanusi has said.

Sanusi who spoke in an interview in London yesterday said the stable exchange rate has helped to keep Nigeria’s inflation between 10.4 percent and 12.5 percent since June last year.

“The system will only come under strain when foreign reserves fall to less than 12 months of imports,” he said.
The naira appreciated to the strongest level in more than three months versus the dollar, strengthening 0.1 percent to N149.7 by the close of yesterday in Lagos, the commercial hub.

Nigeria’s foreign reserves, the source of funding for the Central Bank’s twice-weekly auction of currencies to banks, stood at $37.2 billion as of June 29, compared with a high of $58.3 billion in March 2008.
CBN has supplied $10.8 billion to lenders seeking $9.7 billion at foreign-exchange auctions since the start of the year and sold $250 million at yesterday’s sale at rates of between 148.5 to 148.65 naira per dollar.

Nigeria, which depends on oil exports for more than 95 percent of her foreign-exchange income, experienced a decline in reserves as oil prices plunged following the global financial crisis. Oil is now trading 49 percent below its high of $145.29 reached in July 2008.

Foreign exchange supply by the Central Bank has kept pace with demand since the naira traded at a six-month low against the dollar on May 18.
“The fall in Nigeria’s reserves reflects the authorities’ attempts to defend the currency amid a more general global trend, which has seen other emerging-market currencies and reserve positions come under similar pressure,” Stuart Culverhouse, the London-based chief economist of Exotix Ltd. said in a note to clients on June 23.

Nigeria can afford to spend $12.5 billion to sustain the exchange rate at current levels for the next three months, with at least $26 billion remaining in reserves, Culverhouse said.
Nigeria should be able to meet its foreign exchange demand for many months to come, Ayo Teriba of Lagos- based Economic Associates Ltd. said in an interview last week. “There will be no reason to significantly deplete the foreign reserves,” he added.