Feb. 21 (Bloomberg) -- Nigeria’s naira climbed against the dollar, erasing earlier losses, as oil industry dollar sales outweighed speculation that a rise in the inflation rate would weigh on the local currency.
The currency of Africa’s largest oil producer strengthened as much as 0.8 percent and traded up 0.2 percent at 157.2975 as of 4:43 p.m. in Lagos, after losing as much as 0.7 percent, according to data compiled by Bloomberg.
“The appreciation is due to dollar sales by oil companies and the low demand for the U.S. currency,” Sewa Wusa, a currency analyst at Lagos-based Sterling Capital Ltd., said by phone. “However, as a rule, an economy with consistent higher inflation stands the risk of a weak currency, which raises concern for the naira.”
The Central Bank of Nigeria offers dollars at twice-weekly auctions and interbank trading to maintain exchange rate stability. The oil industry is the second major source of dollar supplies in the country.
The annual inflation rate in Nigeria jumped to 12.6 percent in January from 10.3 percent a month earlier, the National Bureau of Statistics said yesterday. It has increased from 9.3 percent in August, the lowest since May 2008. The central bank maintained its benchmark interest rate at a record 12 percent for a second consecutive meeting Jan. 31 to curb inflation after the government partially removed fuel subsidies, resulting in higher gasoline costs. The inflation outlook will be impacted by fiscal injections, the partial deregulation of petrol price and new tariff regimes on certain food imports, Governor Lamido Sanusi said Jan. 31.
“Key factors that depress the naira include fiscal laxity and a high inflation rate,” Paul-Harry Aithnard, an analyst at Lome, Togo-based Ecobank Transnational Inc, said in a note to clients today.
Nigeria increased its target for this year’s budget deficit to 2.97 percent of gross domestic product from 2.77 percent forecast in December, the Finance Ministry said Feb. 16. Total expenditure will be cut by about 100 billion naira ($634 million) to 4.6 trillion naira this year, while withdrawals from the excess crude account, Nigeria’s oil savings, is set to rise by 36 percent to 306.76 billion naira, the ministry said.
“The greater risk to inflation in our view remains the fiscal stance, but we detect signs of a new realism from lawmakers and are cautiously optimistic,” Gregory Kronsten and Olubunmi Asaolu, analysts at Lagos-based FBN Capital Ltd., said in an e-mailed note to clients today.
The central bank is concerned lawmakers may increase spending by boosting the benchmark oil price to $75 or $80 a barrel from $70 a barrel, Sanusi said Jan. 31.
Ghana’s cedi was unchanged at 1.7003 per dollar in Accra, the capital, after appreciating 0.2 percent yesterday, according to data compiled by Bloomberg.
--Editors: Peter Branton, Linda Shen
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