Bloomberg News

Nigeria Naira Heads for Best Quarter in 14 as Bank Lifts Curbs

June 30, 2011

June 30 (Bloomberg) -- Nigeria’s naira headed for the biggest three-month gain in 14 quarters against the dollar after demand for the U.S. currency ebbed before the central bank lifts curbs on foreign investors’ debt holdings.

The naira advanced 1.1 percent to 152.025 per dollar at 2:01 p.m. in interbank trading in Lagos, according to data compiled by Bloomberg. The currency of Africa’s biggest oil producer has appreciated 2.6 percent since March 31, the best three-month gain since the quarter through December 2007.

The naira may strengthen to 145 per dollar by the end of the year after policy makers decided to lift a requirement for foreign investors to hold local-currency investments in government securities for at least a year starting July 1, Central Bank of Nigeria Governor Lamido Sanusi said June 23. “Positive interest rates” will aid the gain, he said.

“The naira has rallied in anticipation of future inflows,” FM Capital Partners Ltd. strategists, led by London- based Olivier Vojetta, wrote in a research note today. “The Nigerian authorities have been more vigorous in attacking inflation as they have raised the benchmark interest rate three times this year and the authorities announced the removal of the one-year holding-period requirement for foreign investors who hold government bonds.”

FM Capital Partners forecast the naira to finish the year between 145 to 150 per dollar, the analysts wrote.

The Abuja-based central bank raised its key rate by half a percentage point to 8 percent in May to help curb inflation, which accelerated to 12.4 percent in the same month. The bank targets an inflation rate of 10 percent. Lenders’ demand for dollars at the central bank’s auction yesterday was the lowest in five months. The bank sold $183 million, having offered lenders $200 million.

Reform Boost

“Risk appetite and the recent reforms in the Nigerian interbank market helped reduce the demand for hard currency” at auction, BNP Paribas SA analysts led by London-based Bartosz Pawlowski wrote in an e-mailed note to clients today.

The central bank has defended the naira, keeping it within 3 percent above or below the 150 per dollar marginal rate at its twice-weekly foreign-exchange auctions in a bid to curb inflation.

The naira is expected to trade below 150 per dollar by the year end, Nalini Cundapen, a emerging markets strategist at Societe Generale SA in London, wrote in an e-mailed note today.

The central bank “recognizes the naira as a key tool in the battle against inflation,” said Cundapen. “Sanusi is keen to attract foreign investors back to the naira market using liberal reforms.”

--With assistance from Emele Onu in Lagos. Editors: Ana Monteiro, Emily Bowers

To contact the reporter on this story: Chris Kay in London at ckay5@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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