Naira Slips 2nd Day Before Nigerian Central Bank Rate Decision

Nigeria’s naira weakened a second day against the dollar as reduced demand for the West African nation’s bonds put pressure on the currency before a central bank meeting where the key rate will probably be maintained.

The currency of Africa’s biggest oil producer fell as much as 0.1 percent and traded at 158.71 per dollar by 11:15 a.m. in Lagos, the commercial capital, bringing its depreciation this year to 1.6 percent, according to data compiled by Bloomberg. Since reaching a record low on Feb. 20, the yield on the 2022 bond has increased 120 basis points to 11.62 percent, according to yesterday’s prices compiled by Bloomberg.

“With a continued selloff in local bonds in recent weeks, arising in part from reduced foreign interest in the local bond market, the naira may experience more volatility than usual in the short term,” Ridle Markus and Dumisani Ngwenya, analysts at Absa Capital in Johannesburg, wrote in an e-mailed note today. The trend “is unlikely to be sustained amid the improved inflation backdrop.”

The Central Bank of Nigeria’s Monetary Policy Committee today will announce its decision on the benchmark interest rate, which was held at a record 12 percent for eight consecutive meetings. Ten out of 11 economists surveyed by Bloomberg expect the rate to be maintained, while one predicted a 50 basis-point cut.

“Should the CBN keep rates on hold today, as we expect, we believe expectations for a rate cut in the second half will increase, while the naira may benefit from the continued tight monetary policy stance,” Markus and Ngwenya said.

Inflation Target

Inflation accelerated to 9.5 percent in February from 9 percent a month earlier, the statistics agency said on March 17. Central bank Governor Lamido Sanusi said on Jan. 25 it will be “very difficult” to keep the rate in the regulator’s target of less than 10 percent for the rest of the year.

The central bank sold $300 million to lenders yesterday, higher than the $180 million sold a week ago and the most at a single sale since Dec. 19, it said in an e-mailed statement. The Abuja-based regulator uses the twice-a-week auctions to stabilize the naira as the cost of importing refined fuel, which accounts for 70 percent of the local gasoline market, boosts dollar demand and puts pressure on the currency. The bank cut total sales by 6 percent last week to $360 million.

Yields on Nigeria’s $500 million of Eurobonds due January 2021 climbed three basis points, or 0.03 percentage point, to 4.341 percent.

Ghana’s cedi weakened for a sixth day, slipping less than 0.1 percent to 1.9355 per dollar in Accra.

To contact the reporter on this story: Chris Kay in Abuja at ckay5@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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