Nigerian naira eased further against the U.S. dollar on the interbank on Wednesday despite the central bank's direct intervention to calm the market and an increase in supply of the greenback at its bi-weekly foreign exchange auction.
The naira ended at 162.95 to the dollar on the interbank on Wednesday, recovering from a 22-week low of 163.68 naira it hit the previous day. It ended at 162.65 naira on Tuesday after a central bank intervention, dealers said.
Dealers said the central bank has consistently intervened on the interbank market and has also increased the amount of dollars sold at its auction to support the naira.
At the auction on Wednesday the bank sold $400 million at 155.90 naira to the U.S. dollar, higher than the $300 million it auctioned on Monday.
"The central bank is interested in keeping the exchange rate below 163 naira to the dollar level," one dealer told Reuters, adding that hiking dollar supply at its auction was a signal.
Nigeria's foreign exchange reserves hit a 21-month high of $37.64 billion by May 28, which could give the central bank some flexibility to defend the naira in the coming days. The bank still maintains its target band of between 150 and 160 naira to the dollar.
The naira has fallen relentlessly in recent weeks, despite central bank interventions to prop it up, driven initially by dollar demand from fuel importers but later by an exodus of foreign investors out of bonds repatriating their returns.
Dealers say consistent central bank intervention in the interbank market was necessary to keep dollar demand from piling up as foreign inflows shrink.
"We hope the central bank will sustain its direct sales to the interbank market, otherwise the naira should cross the 164 level in the next few days," another dealer said.