Financial analysts have said that the naira has started reacting to the decision of the Monetary Policy Committee to reduce the net open position limit.
The MPC on Tuesday resolved to leave the MPR unchanged at 12 per cent with symmetric corridor of +/-200 basis points.
The bank, however, decided to increase Cash Reserve Ratio to 12 per cent from eight per cent and also reduced the Net Foreign Exchange Open Position to one per cent from three per cent with immediate effect.
The local unit closed at N160.05 to the dollar on the inter-bank market, firmer than the N160.70 a dollar it closed on Tuesday. Financial markets were closed on Tuesday when the interest rate decision was announced.
Reuters quoted a dealer as saying, “This was the initial reaction to the MPC decision to reduce open position limit. Many banks were bidding within their new limit position, pushing more dollars into the market and providing support for the naira.”
The naira has been hit by a fall in the price of oil, Nigeria’s main export, and global risk aversion and has weakened by almost three per cent against the dollar since April.
Currency weakness is aggravating inflation as Nigeria imports 80 per cent of what it consumes.
Consumer inflation rose to 12.9 per cent year-on-year in June, up from 12.7 per cent in May. The CBN expects it to peak around 14 percent later this year.
Traders said three energy companies, units of France Total sold $78m, ExxonMobil sold $54bn and Slumberger $3m, which further boosted dollar liquidity and provided support for the naira.
“The naira will continue to trend around this level in the near term as the market gets more dollar inflows from oil multinational companies for their month-end sales,” another dealer said.
On the bi-weekly auction, the CBN sold $217m at N155.84 to the dollar, compared with $300m sold at N155.89 to the dollar on Monday.
