Naira Falls as CBN Slashes Dollar Supply

 Naira notes

Obinna Chima

The naira slipped against the United States dollar at the interbank segment of the forex market Monday  as demand for the greenback surpassed its supply.

Specifically, the naira fell by 58 kobo at the interbank as it closed at N157.40 to a dollar Monday, compared with the N156.82 to a dollar it closed on Friday.

However, at the Central Bank of Nigeria’s (CBN)-regulated Wholesale Dutch Auction System (WDAS), demand for the dollar fell further as the apex bank was unable to sell the total amount of dollars its supplied the market.

At the WDAS, which is also known as the bi-weekly auction, only $29.884 million out of the $50 million offered by the central bank was sold. The naira was however stable at N155.74 to a dollar, same amount it was at the end of last Wednesday’s auction. Only seven banks participated in the auction.

The banking sector regulator had offered a total of $50 million at its previous auction, which was completely sold.

Meanwhile, the latest central bank’s report on the performance of the external sector in the second quarter 2012 showed that portfolio Investment inflows dropped from $3.82 billion recorded in the preceding quarter to $2.64 billion.
The decline in foreign direct investment (FDI) inflows was traced to the security challenges and slow pace of global economic recovery.

However, the continued dominance of portfolio investment in the aggregate capital flows reflected the attractiveness of the domestic financial assets.

The report also indicated that forex inflows to the economy dropped by 2.44 per cent from $28.19 billion in the first quarter of 2012 to $27.50 billion in the second quarter 2012.

However, total outflows increased marginally by 0.32 per cent from $10. 09 billion in first quarter 2012 to $10.11 billion.

“Consequently, a net inflow of $17.38 billion was recorded in second quarter 2012 as against $18.10 billion in first quarter 2012.

It added: “Further analysis revealed that the inflow through the CBN declined by 17.07 per cent from $12.11 billion in the preceding quarter to $10.05 billion in the review period. Similarly, outflow through the Bank declined marginally, by 1.70 per cent, from $9.76 billion in Q1 2012 to $9.59 billion in Q2 2012.

“Total foreign exchange transactions through the bank therefore resulted in a substantially lower net inflow of $0.46 billion in the review period.

“The currency composition of foreign reserves showed that the holdings of foreign reserves in United States dollar was $29.09 billion and constituted 82.1 per cent of the total. Other currencies in the basket include Euro (6.9 per cent), Great Britain Pounds (2.2 per cent) and Chinese Yuan (1.4 per cent).”