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Nigerian naira eases on importer dollar demand

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Monday January 23, 2012

The Nigerian naira eased against the U.S. dollar on the interbank market and at the central bank's bi-weekly auction on Monday as importer activity gradually resumed in the south of the country after strikes over the withdrawal of fuel subsidies.

Traders said the outbreak of violence in the northern city of Kano last week in which Islamist insurgents killed at least 178 people had little impact on the naira.

They said the naira depreciated due to increased dollar demand by importers mostly based in the southern part of Africa's second biggest economy.

The naira closed at 161.30 to the dollar on the interbank market on Monday, higher than Friday's close of 160.90 naira.

Dealers said strong demand for the greenback by importers has reduced the level of liquidity in the market, causing the naira to weaken.

State-owned energy company NNPC sold about $550 million to some lenders on Friday, providing support for the local currency which firmed then to its strongest level in 18 days but liquidity has dried up from the system.

"The market reacted to the depreciation of the naira at the official window, especially since the central bank continues to hold back information on the level of demand at its auction," one dealer said.

The central bank sold $250 million at 157 naira to the dollar at its bi-weekly auction on Monday, the same amount it sold at 156.85 naira at its last auction on Wednesday. It did not disclose the level of demand.

Traders say withholding information on the level of demand at the central bank's auction could weigh negatively on the naira and trigger speculative purchases on the interbank market.

"As the economy resumes full activities, more demand for the dollar will flood the market and the naira should depreciate further unless there is a major dollar sale by some oil companies," another dealer said. 

Source: Reuters (Reporting by Oludare Mayowa)

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