The Nigerian naira weakened further against the U.S. dollar on the interbank market on Wednesday as strong demand for the greenback persisted in the face of static supply, traders said.
The naira closed at 153.80 to the dollar against 153.54 on the previous day as the central bank failed to meet all the dollar demand at its bi-weekly auction. At the official window, it sold $250 million at 150.71, compared to $342.34 million demanded. On Monday, it sold $250 million at 150.56.
Traders said dollar sales by units of Royal Dutch Shell and Exxon Mobil were not sufficient to satisfy the market on Wednesday.
Ideally, we expect the naira to appreciate this week as a result of dollar sales by most energy companies, but it seems strong demand has weakened the impact of the inflows, one dealer said.
Most oil companies operating in Africa's top energy producer sell dollars around the end of every month to obtain naira for local obligations; dealers estimated such inflows since last week, which have included dollar sales by state-run oil firm NNPC, at about $500 million.
But the inflows have not been enough to balance heavy dollar demand, which dealers and analysts said may have been partly due to a rise in imports of refined oil products, and an increase in their price. The rise in international crude oil prices may not yet be benefiting Nigeria because it is locked into long-term contracts, while any additional dollars obtained from crude oil exports may not be remitted to the country immediately.
There may also be some short-term investment outflows from Nigeria; the main stock index has dropped nearly 8 percent from a late January peak, partlly because of a slide in bank shares since investors fear the recapitalisation of banks rescued in a bailout could see existing shareholders diluted.
Traders said the naira would probably continue to depreciate modestly in coming days unless the central bank increased its dollar supplies to meet all the demand at its auctions.
It may be reluctant to do this because of a continued decline in Nigeria's foreign reserves, which slipped to $33.25 billion at the end of February from $34.01 billion on February 17 and $41.38 billion a year earlier, according to data released on Wednesday.
The International Monetary Fund said last month that speculation against the naira could become intense if the reserve depletion continued.
However, although some investors are said to be going long on the dollar in case there is eventually significant naira depreciation, most traders and analysts still think there is very little chance of the central bank permitting such a drop.
The central bank has been supplying dollars to keep the naira in a range of roughly 150-155 in the interbank market since 2009, and appears unlikely to change this because of the potential impact on inflation, and since any major move in the rate could cause panic. Authorities may be particularly keen to maintain stability before the April 9 presidential elections.
Central Bank Governor Lamido Sanusi last month firmly rejected the IMF's call for greater flexibility of the naira.
We...do not think that it makes sense, if the IMF is concerned about inflation, to ask a country that is import dependent to devalue its currency...So the advice given by the IMF, frankly, is not based on sound economic logic, he said.