Naira Gians Most in 6 Months as Central Bank Holds Rate

Nigeria’s naira rose to its strongest in almost two months against the dollar after the central bank cut the proportion of lenders’ assets that can be held as foreign exchange and held the benchmark interest rate at a record high.

The currency of Africa’s largest oil producer strengthened 0.7 to 159.75 per dollar as of 3:18 p.m. in Lagos, the commercial capital, its strongest on a closing basis since May 29.

The Central Bank of Nigeria said yesterday it reduced the amount of foreign exchange banks can hold as a percentage of their shareholders’ funds to 1 percent from 3 percent and kept its interest rate unchanged at 12 percent. The amount of cash as a percentage of deposits that commercial banks must hold with the central bank was increased to 12 percent from 8 percent, Governor Lamido Sanusi said.

“We expect transient relief in the interbank currency market as some banks adjust their net asset exposure to comply with the new regulation, which will likely lead to a retraction in foreign-exchange demand and a resultant firming of the currency,” Adedayo Idowu, a Lagos-based analyst at Vetiva Capital Management Ltd., said in e-mailed comments today.

Nigeria sold $217 million at a foreign-currency auction today at 155.84 naira per dollar, compared with 155.89 at the previous sale on July 23, the Abuja-based central bank said in an e-mailed statement.

Inflation accelerated to 12.9 percent in June, from 12.7 percent in May, the Abuja-based National Bureau of Statistics said July 18. The country’s foreign-currency reserves have fallen by $1.3 billion since the end of May to $36.391 billion, according to July 23 data compiled by the central bank.

Reserves

The impact of the bank’s decisions will be a stabilization of the exchange rate at 160 to 163 per dollar, and an increase in bond yields, “particularly at the long end, and a gradual accretion of reserves,” CSL Stockbroker Ltd. analysts, including London-based Alan Cameron, wrote in a research report.

The yield on Nigeria’s seven-year domestic bonds due June 2019 fell two basis points to 16.03 percent, according to July 24 data on the Financial Markets Dealers Association website. Yields on the nation’s $500 million of Eurobonds due 2021 were unchanged at 5.477 percent today.

Ghana’s cedi depreciated for the fifth day, weakening 0.1 percent to 1.9575 per dollar in Accra, the capital, the lowest since at least 1993.

To contact the reporter on this story: Emele Onu in Lagos at eonu1@bloomberg.net

To contact the editor responsible for this story: Dulue Mbachu at dmbachu@bloomberg.net

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