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Naira Advances on Speculation of Nigerian Central Bank’s Support

The naira strengthened against the dollar on speculation the central bank of Africa’s top crude producer will keep the currency stable to prevent a build-up of inflation.

The currency appreciated 0.1 percent to 160.21 as of 10:54 a.m. in Lagos, the commercial capital, according to data compiled by Bloomberg.

Gasoline prices in Africa’s most populous country surged by almost 50 percent last month, stoking inflation which touched 10.3 percent in December. President Goodluck Jonathan backtracked on an earlier decision to scrap fuel subsidy in Nigeria after gasoline costs more than doubled, prompting protests and strikes. He has not reinstated subsidy to levels that existed prior to the withdrawal, agreeing only to a partial climbdown.

“The Central Bank of Nigeria is anxious to hold the line on the exchange rate,” Gregory Kronsten, chief economist at FBN Capital Ltd. in London, wrote in a note to clients today. “Its determination will have been enhanced by the imminent spike in headline inflation as a result of the fuel price increase last month. The exchange rate has a greater influence on inflation than monetary policy.”

A rising government spending threatens to keep inflation above the central bank’s target of 10 percent, Governor Lamido Sanusi said Jan. 31 and added he favors a stable exchange rate while building up reserves.

The foreign-exchange reserves of Africa’s most populous nation have increased 5.5 percent this year to $34.7 billion as of Feb. 2, according to the central bank.

“The increase this year is not explained by the oil price and could have been driven by an easing of foreign exchange demand,” said Kronsten.

Ghana’s cedi strengthened less than 0.1 percent to 1.6848 per dollar as of 10:08 a.m. in Accra, the capital, according to data compiled by Bloomberg.

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