Oct. 4 (Bloomberg) -- Nigeria’s naira is poised to strengthen almost 3 percent in “coming weeks” as the central bank acts to keep the currency near its preferred level of 150 per dollar, according to Standard Bank Group Ltd.
The currency of Africa’s most-populous nation gained 0.2 percent to 154.27 per dollar as of 2:05 p.m. in Lagos, Nigeria’s commercial capital. Policy makers aim to keep the naira exchange rate at “around 150” per dollar and avoid fluctuations of more than 3 percent, central bank Governor Lamido Sanusi said in October last year.
The regulator “continues to see dollar-naira stability as its monetary policy anchor and sees 150 as an appropriate central point of its allowed trading range,” Samir Gadio, a London-based emerging-markets strategist at Standard Bank, Africa’s biggest lender, said in a research note today. “As such, we expect to see dollar-naira trade back to the Central Bank of Nigeria preferred range more tightly around the 150 level.”
Nigeria’s currency weakened almost 2 percent last month as the central bank limited sales of dollars to commercial banks to preserve its foreign-currency reserves. The West African nation’s reserves slumped to $35.2 billion on Sept. 28, compared with $58.3 billion in March 2008.
“The lack of reserve accumulation reflects a lack of naira confidence,” said Gadio. The decline in the naira is “mostly of speculative nature rather than structural.”
The bank sold the highest amount of dollars to lenders in at least a year at an auction last week, following an increase in demand. Nigeria sold $650 million of foreign currency at the Sept. 27 session of its twice-weekly auction, the highest since at least Sept. 9, 2009.
That was less than the $741 million lenders demanded on behalf of their customers and was the seventh consecutive session the central bank failed to meet demand for foreign currency. Still, foreign reserves are sufficient to cover about 12 months of Nigeria’s imports, Gadio wrote in today’s note.
“Reserves have declined but still remain robust,” Gadio wrote.
Nigeria is Africa’s biggest oil producer and relies on crude exports for about 95 percent of its foreign currency earnings, the source of funding for the central bank dollar auctions. Oil prices that reached $81.87 a barrel today are above the $60 figure used by Nigeria’s government when setting its budget this year, according to Standard Bank.
That’s likely to enable the country to post a surplus on its current account, a measure of goods and services trade, of about 12.6 percent of gross domestic product this year, the lender estimates.
Nigeria’s central bank unexpectedly raised the benchmark interest rate by a quarter of a percentage point to 6.25 percent on Sept. 21 to curb a pickup in inflation. Price growth accelerated to an annual 13.7 percent in August from 13 percent the month before, the statistics office said on Sept. 17.
“By raising real interest rates the CBN is sending a signal to the market that it is keen on preserving a tight band around the dollar-naira 150 level,” Gadio wrote.
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