The naira on Tuesday appreciated by 101 kobo in the interbank foreign exchange market courtesy of $227 million autonomous supply from oil firms.

The naira however depreciated marginally at the official market due to excess demand. Vanguard investigation revealed that three companies namely Nigeria Liquefied Natural Gas Company, Total and Niger Delta Development Commission sold $227 million between Monday and Tuesday while the Nigeria National Petroleum Corporation is expected to also sell foreign exchange this week.

Consequently, the interbank exchange rate dropped to N154.9875 per dollar on Tuesday from N156 per dollar the previous day.

But the official foreign exchange rose slightly to N151.12 per dollar from N151.01 per dollar, indicating further depreciation of 11 kobo for the naira. The depreciation was occasioned by excess demand over the amount supplied by the Central Bank of Nigeria.

Though foreign exchange demand during the auction conducted on Monday dropped marginally by 7.3 per cent to $467.860 million from $473.493 million in the last auction, the apex bank however supplied $400 million.

Meanwhile, the 100 basis points increase in the Monetary Policy Rate (MPR) by the CBN, has been described as a surprise and necessary response to the 2011 budget. ?This will take almost everyone by surprise ?, says Razia Khan, Regional Head of Research, Africa, and Standard Chartered. In an email response to the MPR increase, she said

The announcement of passage of a far more expansionary fiscal budget for 2011, appears to have been the determining factor, with the MPC voting unanimously to tighten rates.

The magnitude of fiscal expenditure, pretty much unchanged from last year ?s dramatically elevated levels, certainly required an offsetting policy response. Inflation risks in Nigeria are already high and moving higher.

Imported fuel is a contributor, and recent pressure on the NGN provided plenty of reason to be concerned.

With the corridor around the MPR unchanged at +/-200Bps, the rate on the standing deposit facility now moves up to 5.5%.

The rate on the CBN ?s standing lending facility is 9.5% - higher, but of course still less than the prevailing inflation trend. ? The apex bank at its Monetary Policy Committee meeting on Tuesday, raised the MPR by 100 basis points from 6.5 to 7.5 per cent in order to curb the inflationary impact of the 2011 budget.

It also extended by three months the deadline for guarantee on interbank transactions and guarantee of foreign credit lines by three months from June 30, 2011 to September 30, 2011.

Khan noted that the extension of interbank guarantees for the banking system, for another three months, speaks much of the authorities policy dilemma. While narrow money growth is now more robust, driven by government spending.