The Naira depreciated to its lowest level in more than a year versus the dollar on speculation companies stepped up dollar purchases to repatriate profits and buy imported goods.
The naira slumped as much as 0.7 percent to 154.8 to the dollar, the weakest intraday level since August 25, 2009, and traded 0.1 per cent lower at 153.905 by 2:31 p.m. in Lagos from a previous close of 153.72.
Nigeria’s economy “is import-dependent and at this time of the year demand for foreign currency is normally high as companies increase importation to prepare for the end-of-the-year sales,” Kwekwu Brown, an analyst with Lagos-based Source Capital Nigeria Ltd., said in a telephone interview recently.
The Central Bank of Nigeria failed to meet demand for dollars by lenders for the sixth consecutive session at its twice-weekly foreign exchange auction on Sept. 22, selling $400 million as lenders demanded $646.2 million.
Nigeria, Africa’s top oil producer depends on oil exports for more than 95 percent of its foreign exchange income, the source of funding for the Central Bank foreign currency auctions. The country’s oil revenue declined as crude oil prices plunged from record highs reached in July 2008.
“Nigeria’s currency is potentially unstable since the inflow of foreign exchange depends on oil exports and the value of the currency would always fall when oil prices drop,” said Brown.
The country’s foreign reserves currently stand at $36.6 billion on Sept. 13, compared with a high of $58.3 billion in March 2008. The central bank increased its benchmark interest rate by a quarter of a percentage point on Sept. 21 to curb a pickup in inflation after the annual rate accelerated to 13.7 percent in August from 13 percent in July.