Naira rises to 282, CBN boosts dollar supply

 

The naira strengthened against the United States dollar in the new inter bank market on Wednesday as the Central Bank of Nigeria sought to stabilize the market by selling dollars.

The naira closed at 282.80 per dollar, after earlier dropping as much as 0.5 per cent, down from 284.5 on Tuesday.

The CBN has intervened in the market by selling foreign exchange since it ended the currency’s 16-month fix of 197-199 per dollar on Monday. It sold $4bn in the spot and forwards markets that day to clear a backlog of demand for hard currency, and followed that with about $100m of sales on the spot market on Tuesday.

“The market expects the central bank to continue to intervene on a daily basis for now as it is easily the only source of dollar supplies,” Bloomberg quoted the Head of Research at SCM Capital Limited, Mr. Sewa Wusu, to have said.

“Foreign direct investment and portfolio flows are yet to start flowing in as investors wait on the sidelines to watch for liquidity, price discovery and stability,” he said.

Forward contracts dropped as traders reduced their bets on how much further the naira will weaken, although they still see it dropping 6.5 per cent by late September.

Three-month naira non-deliverable forward contracts fell 4.7 per cent, the most on a closing basis since May 17, to 302.25 per dollar. Contracts maturing in a year declined 3.7 per cent to 340 per dollar.

“The monetary authority will be a regular participant in the interbank market, at least in the short term, to ensure that sufficient liquidity is available to facilitate two-way trade,” analysts at Johannesburg-based Rand Merchant Bank, including Celeste Fauconnier and Nema Ramkhelawan-Bhana, said in a note to clients.

The nation’s benchmark equity index rose for a second day, advancing by 2.4 per cent to 30,127.82, its highest close since October 21. It has soared 34 per cent since falling to a more than three-year low on January 19, as local investors buy stocks anticipating a return by foreigners, who fled when the central bank imposed capital controls to defend the naira’s peg.

Yields on the nation’s $500m bonds due in July 2023 were little changed at 7.09 per cent. They have dropped 51 basis points since the CBN Governor Godwin Emefiele announced on June 15 that he was ending the currency fix.