Naira gains after central bank rate hike
Nigeria's naira rose to a
five-week high against the dollar after
the central bank hiked interest rates to tame inflation and lifte restrictions
on foreign investors participating in its fixed-income auctions.
The currency rose to N1,200
per dollar on the official market, strengthening above the parallel market
levels at about N1,340.
Last week, Nigeria's central
bank said it had cleared all of its verified foreign exchange backlog, part of
its strategy to stabilise the naira and tame soaring inflation.
The central bank on
Tuesday raised its monertary policy rate 200 basis points to 24.75per cent
from 22.75 per cent, a month after its largest hike in around 17 years.
The central bank paid
26.6 per cent for the one-year Treasury bill at its last auction two weeks ago,
but investors at Wednesday's auction expect yields to rise above secondary
market quotes of around 22.75 per cent for the one-year bill and around 20.6%
for the benchmark 10-year note.
Goldman Sachs analysts
Andrew Matheny and Bojosi Morule said the central bank's further rate hike and
"the emphasis on improving monetary transmission mechanism by mopping up
liquidity will help to rebuild policy credibility", boosting Treasury bill
yields to about 28 per cent to 29 per cent
In the past, lenders
faced constraints in fulfilling foreign investors' bids as they incurred extra
costs on settlement day if they borrowed from the central bank's discount
window to pay for bills.
Foreign investors can now
pre-fund their accounts and get naira at the prevailing exchange rate for the
auctions, analysts said.
"With this policy
mix and with more inflows likely, including a Eurobond, we remain constructive
on the naira, with our forex strategists forecasting an appreciation to N1,200
versus the dollar over the next 12 months," Matheny and Morule wrote in a
research note to clients on Wednesday.
The central bank hopes the auctions can attract sufficient foreign interest to boost dollar liquidity.
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