Naira Hits 5 Week High on Subsidy Probe

Written by This Day Thursday, 09 February 2012

The naira improved against the United States dollar at both the interbank and the Central Bank of Nigeria’s (CBN) Wholesale Dutch Auction System (WDAS) segments of the forex market yesterday as demand for the greenback from oil marketing companies continues to diminish.

Specifically, at the interbank market, the local currency gained 80 kobo to close at N159.50 to the dollar, compared with the N160.30 to a dollar at which it sold the previous day. The last time the naira exchanged at current rate was on January 4 this year.

At the WDAS yesterday, the naira also climbed by 35 kobo to close at N156.50 to the dollar, stronger than the N156.85 at which it closed last week Wednesday.

The CBN offered a total of $450 million to dealers, compared with the $250 million sold last week Wednesday. The apex bank increased its supply at the WDAS to meet the volume of demand because the auction was not held on Monday, owing to the Muslim public holiday.

Deputy Governor of the CBN, Mr. Tunde Lemo, on Tuesday, said the ongoing investigation into the management of the fuel subsidy regime by the House of Representatives had reduced the demand for foreign exchange by major oil importers.

Lemo, who appeared before the committee in Abuja, said there had been a reduction in the forex demand especially in the petroleum sector.

Dealers also attributed the performance of the local currency to increased dollar supply from oil companies, even as they predicted that the naira could improve further because of the liquidity position of the market.

In fact, they revealed that the interbank market received a total inflow of about $590 million from Mobil Nigeria, the Nigerian National Petroleum Corporation (NNPC) and some other undisclosed oil companies.
However, financial markets stated that the increase in Nigeria’s forex reserves has also lifted the naira.

The country’s forex reserves had improved significantly by a total of $1.803 billion in the first five weeks of 2012, from $32.915 billion as at December 30, 2011 to $34.718 billion by February 2.

Analysts at Renaissance Capital (RenCap) also declared that the partial removal of petrol subsidy would positively impact the naira as well as the forex reserves.

RenCap explained: “The halving of the government’s petrol subsidy expenditure is expected to reduce arbitrage opportunities in the oil marketing sector. This is expected to allow forex reserves to accrete in 2012, following zero growth in 2011.

“If forex reserves continue to increase at the rate they did in January, then Nigeria is likely to have a stronger forex position in 2012, which is positive for the naira.

“If the oil price remains resilient, as it has in early 2012, and stays above our projection of an average price of $100 per barrel, then there is upside potential for Nigeria’s external sector.
“We expect the naira/dollar exchange rate to have a more stable trajectory in 2012, on the back of this.”

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