Naira climbs as dollar sales outweigh inflation

The naira climbed against the dollar, erasing earlier losses, as oil industry dollar sales outweighed speculation that a rise in the inflation rate would weigh on the local currency.

The local curreny strengthened as much as 0.8 per cent and traded up 0.2 per cent at N157.2975 in Lagos, after losing as much as 0.7 per cent, according to data compiled by Bloomberg.

"The appreciation is due to dollar sales by oil companies and the low demand for the US currency," Sewa Wusa, a currency analyst at Lagos-based Sterling Capital Ltd., said by phone. "However, as a rule, an economy with consistent higher inflation stands the risk of a weak currency, which raises concern for the naira."

The Central Bank of Nigeria (CBN) offers dollars at twice-weekly auctions and interbank trading to maintain exchange rate stability. The oil industry is the second major source of dollar supplies in the country.

The yearly inflation rate in Nigeria jumped to 12.6 per cent in January from 10.3 per cent monthly earlier, the National Bureau of Statistics said Monday. It has increased from 9.3 per cent in August, the lowest since May 2008. The Central Bank maintained its benchmark interest rate at a record 12 per cent for a second consecutive meeting January 31 to curb inflation after the government partially removed fuel subsidies, resulting in higher gasoline costs.

The inflation outlook will be impacted by fiscal injections, the partial deregulation of petrol price and new tariff regimes on certain food imports, Governor Lamido Sanusi said January 31.