Naira gains as forex reserves dip

AFTERMATH of the hike in interest rates by the Central Bank of Nigeria (CBN), the naira has continued to appreciate against other world currencies.The naira firmed sharply against the dollar on Wednesday as the CBN pumped dollars into the market and cleared all forex demands at its bi-weekly auction, signalling its determination to support the naira.The CBN sold all the $591.67 million demanded at N150 to the U.S. dollar at the auction, a rate not seen since July, compared to $400 million sold at N156.91 at its previous auction on Monday.The apex bank also intervened in the interbank market on Tuesday, selling $200 million at N153 to the dollar to some banks in the country tempering demand at the auction."The central bank needs to show it can sustain the support for the naira by meeting demand at subsequent auctions, in view of the declining foreign reserves," one dealer said.The naira closed at N157.10 against the dollar at the interbank, firming from Tuesday's close of N158.90 and up six per cent from the record low of N167.8 reached before the CBN imposed several monetary tightening measures at an emergency meeting on Monday.The naira traded around N153.30 shortly after results of the auction were announced, but remained volatile.The decline of the naira steepened this month, after the apex bank broke its rule of only selling dollars in the N145.5 ' N154.5 range at its bi-weekly currency auctions, a system designed to stabilise forex trading.After selling dollars outside the weakest boundary at three auctions running, it returned within the channel on Wednesday, as the regulator looked to capitalise on this week's measures.It will be recalled that the CBN hiked its benchmark interest rate by 275 basis points to 12 per cent on Monday, far higher than analysts expected, but the regulator's bold actions to support the naira had a cost.The foreign reserves stood at $30.86 billion at October 7, declining to multi-year lows, without reflecting dollars sold this week.CBN governor, Lamido Sanusi, on Monday, said raising interest rates and tightening other areas of monetary policy would soon result in higher forex reserves.
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