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Naira stabilises at Interbank

The naira exchange rate stabilized at the interbank foreign exchange market even as cost of funds moderated downward.

naira sign

At the close of business yesterday N150.89 exchanged for one dollar at the interbank market as against N150.9 on Monday.

The relatively stability of the naira is due to the six kobo appreciation at the official market on Monday, and especially the fact that the Central Bank of Nigeria (CBN) met all foreign exchange demand at the Wholesale Dutch Auction System (WDAS) session.

The apex bank offered $450 million while demand dropped sharply to $381 million from $474.25 million the previous auction. Consequently, the official  exchange rate fell to N148.47 per dollar from N148.93 on Friday.
It would be recalled that the naira depreciated by 12 kobo due to increasing unsatisfied demand in foreign exchange market.
Meanwhile, interbank interest rates dropped marginally yesterday in response to the outcome of the Federation Accounts Allocation Committee (FAAC) meeting.
Interest rate on Call Lending, Seven Days lending and 30 days lending dropped to 8.168, 8.0 and 8.7 per cent from 7.833, 8.0 and 8.7 per cent respectively.

The FAAC meeting ended with a resolution of the stalemate on the amount of statutory allocation to be shared among the three tiers of government. Implying that allocation for April would be released this week. The allocation would boost market liquidity and hence further decline in cost of funds.

On the international scene, the euro fell to the lowest level since 2001 against the yen amid concern weakness in Spain’s savings banks signals an expansion of Europe’s sovereign debt crisis that may hinder global economic recovery.  The won slumped as tensions escalated between the two Koreas over the sinking of a warship from the South’s navy in March.

The 16-nation shared currency declined versus the dollar as the International Monetary Fund said Spain has been too slow to strengthen its banking system, adding to speculation Europe’s financial institutions may face more losses. The rate banks say they pay for three-month loans in dollars rose for an 11th day. “It very much feels like panic out there,” said Chris Diaz, co-portfolio manager of the $400 million ING Global Bond fund in Atlanta. “There’s concern over contagion and whether it will bring the global economy back into recession.

The yen is rallying in a risk-off environment and every other currency is getting beaten up.” The euro weakened 1.6 percent to 109.88 yen at 10:15 a.m. in New York after dropping to as low as 108.84 yen, the least since November 2001. The common currency depreciated 0.9 percent to $1.2254, after falling as low as $1.2178. It reached a four- year low of $1.2144 on May 19.

The dollar declined to 89.52 yen, from 90.29 yen. We can’t find anyone who’s bullish on the euro — period,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “The market was already quite unstable and you get a few shocks going through and it accelerates the machine.

Spain’s banking industry “remains under pressure” as consolidation has been “too slow,” the Washington-based IMF said in a report yesterday after a regular review of Spain. The IMF said it fully supports Spain’s new austerity measures that plan to rein in the budget deficit with the deepest spending cuts in three decades.

Four Spanish savings banks plan to combine to form the nation’s fifth-largest financial group with more than 135 billion euros ($165 billion) in assets, as regulators push ailing lenders to merge with stronger partners. The Bank of Spain said on May 22 it appointed a provisional administrator to run CajaSur, a savings bank crippled by property-loan defaults.

The seizure is the first under a state- financed rescue plan that Standard & Poor’s estimates may cost as much as 35 billion euros, increasing the burden on Spain’s finances as the government tries to reduce its budget deficit. Stresses in Spain’s banking system are intensifying concern that the Greek debt crisis may spread, Mohamed A. El-Erian, whose company runs the world’s biggest mutual fund, said in an interview with PBS.

“The minute you introduce strains in the banking system, there’s always a fear that governments will be behind the curve and that you can get contagion,” El-Erian, co-chief investment officer at Pacific Investment Management Co., said on PBS’s Nightly Business Report.

“You can get widespread disruption.” Corporate and sovereign credit risk indicators jumped to the highest level in 10 months, and the rate banks say they pay for three-month loans in dollars climbed for the 11th day as Europe’s debt crisis and Korea tensions spooked investors.

The London interbank offered rate, or Libor, for such loans advanced to 0.536 percent, the highest level since July 7, from 0.510 percent yesterday, according to data from the British Bankers’ Association. The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, widened to the most since July 16.


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