The currency rose to 1,200 per dollar on the official
market, LSEG data showed, strengthening above the parallel market levels at
about 1,340.
Africa's largest economy has been grappling with dollar
shortages that pushed its currency to a record low of 1,851 per dollar last
month, though central bank Governor Olayemi Cardoso has said that dollar
liquidity is improving.
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 monetary policy rate
200 basis points to 24.75% from 22.75%, a month after its largest hike in
around 17 years.
The central bank paid 26.6% 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% 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% to 29%.
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 1,200 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.
Tellimer economist Patrick Curran said that "while
forex liquidity has improved, it is still well below pre-pandemic levels and a
boost in dollar supply will be needed to support further naira
appreciation." Reuters
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