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Naira weakens to a 4 month low

04 June 2012, 14:00

Lagos - The naira weakened to a four month low of 161.25 to the dollar on Monday, as foreign investors nervous about inflation and currency weakness pulled their money out of government bills and bonds to repatriate it.

"Foreign investors are exiting the market and that's affecting the naira. This has been the trend since May," a dealer told Reuters, adding that the naira was also very illiquid at the moment.

"Real interest rates have slimed down due to a rise in inflation and ... FX rates (of dollars) are going up."

The naira has been falling in recent weeks, despite Nigeria's foreign exchange reserves rising to a 21-month high of $37.64 billion by May 28, up 3 percent from a month earlier, as dollar supply still fails to meet demand.

The currency, which had consistently stabilised around the 157 naira to the dollar level for more than three months of this year, came under pressure two weeks ago from strong dollar demand by fuel importers and investors repatriating dividends.

The central bank has directly sold dollars in the interbank market since last week, outside its bi-weekly foreign exchange auction, as part of measures to calm the market and provide support for the local currency, but with mixed success.

Traders expect it to remain relatively stable so long as the central bank intervenes aggressively to support it.

- Reuters

Tags economy

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