July 29 (Bloomberg) -- Nigeria’s naira headed for its first weekly drop in three after dollar demand rose at an auction and the central bank move to allow more sales at foreign-exchange bureaux.
The currency of Africa’s biggest oil producer has slid 0.5 percent this week in interbank trading to 153.11 per dollar, according to data compiled by Bloomberg. The naira was unchanged as of 11:40 a.m. in Lagos trading, after slipping to as low as 153.17 per dollar.
Demand for dollars at the Central Bank of Nigeria’s July 25 auction climbed to $545 million, the most requested since March 28, and stood at $518 million at the last sale on July 27. The marginal rate, used as the official exchange rate, fell to 150.46 per dollar. The bank targets naira stabilization by keeping the rate within 3 percent above or below 150 per dollar at the auctions in a bid to control inflation.
“The rising demand pattern observed at the CBN auction has been attributable to cyclical demand from importers of petroleum products and food commodities, particularly rice,” Ediale Eremionkhale, a currency trader at Lagos-based Access Bank Plc, said by e-mail. “Our market simply depends on the interplay between forces of demand and supply. The naira has weakened at both the official window and interbank market due to the rising demand at the CBN auction and limited supply from oil companies.”
The bank doubled the amount of money lenders can sell to foreign-exchange bureaux to $500,000 a week in a bid to stabilize the trading rate of the local currency, according to a statement its website yesterday. Governor Lamido Sanusi said July 26 that the monetary policy committee “noted” the difference between the auction and bureaux de change rates and that the spread may lead to “arbitrage” and “unhealthy speculation.”
The current bureau de change rate is 163.50 to 165.50 naira per dollar, Eremionkhale said.
“The recent policy move is intended to narrow the difference between the CBN, auction, interbank and bureaux de change rates,” Eremionkhale said. “We do not believe that the amount of increase is sufficient to cause any change in the current market dynamics.”
Nigeria raised its benchmark interest rate for the fourth time this year to 8.75 percent on July 26. While inflation slowed in June to 10.2 percent, the weakest since May 2008, the core inflation rate, which excludes food, is expected to accelerate in the second half, Sanusi said.
“Despite weakening slightly this week, the naira has been sustained within a 3 percent trading range around 150 per dollar,” Nema Ramkhelawan-Bhana, a currency analyst at Rand Merchant Bank in Johannesburg, said by e-mail today. “Prudent tightening of monetary policy should allow the CBN to reduce excess demand for foreign currency over time, thereby lessening depreciatory pressures on the naira.”
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