Nigeria’s currency plunged to record lows Friday, despite central bank measures, on concerns about the fall in oil prices. Nigeria’s central bank intervened to support its currency on Friday after a record-breaking slide. traders said the central bank stepped in after the dollar shot up to over 172 against the naira, marking an all-time low for the Nigerian currency driven by concerns that the crumbling oil price will hit Africa’s biggest economy hard. The naira recovered to around 167 against the buck. A central bank spokesman didn’t respond to calls and text messages seeking comment.
Analysts say the naira isn't out of trouble yet, and warn of a self-reinforcing slide in the currency ahead.
“The central bank may face political pressure not to raise rates ahead of February’s general election,” Capital Economics analyst Jack Allen wrote in a note to clients. “But we think that the threat of a currency crisis is likely to trump these concerns.”
The naira’s drop placed Nigeria among the oil-rich nations hardest hit by a production glut that has prompted a 25% drop in Brent crude prices in recent months. The bruised ruble has also caused headaches for the Russian central bank, while the Norwegian krone and Canadian dollar have also dropped. Oil and natural gas account for 96% of export revenue in Africa’s top producer, and about 80% of government revenue, according to the International Monetary Fund.
Attempting to curtail the damage to its currency, the Central Bank of Nigeria on Thursday sought to temper dollar demand by barring importers of goods including electronics, generators and telecommunications equipment from procuring dollars at its foreign exchange auctions.
The bank also limited the amount of money lenders can deposit in the bank’s so-called Standing Deposit Facility to 7.5 billion naira, or about $44 million. That regulation should boost naira liquidity between banks, traders say.
But Nigeria’s foreign-currency reserves recently stood at $39.5 billion, much smaller than Russia’s $454 billion as of the end of September, limiting Nigeria’s ability to hold back the decline.
Other corners of Nigerian markets also felt the heat. The all share stock index dropped 4.1% to its lowest point in nearly 18 months and all three of Nigeria’s outstanding dollar-denominated bonds were trading marginally lower, according to Tradeweb.
The plunge in oil prices recently could put pressure on Nigeria’s budget just as President Goodluck Jonathan and state officials are expected to ramp up spending to curry political favor ahead of national polls set for February 2015.
“Investors with a contrarian view on oil may have ordinarily viewed now as an attractive opportunity to buy into the currency, but with the added uncertainty around elections, we’re not really seeing this,” said Razia Khan, head of Africa research at Standard Chartered.
A weaker naira could make it more difficult for the government and private investors to fund power, road and rail projects—officials say they need to diversify Nigeria’s economy and sustain strong growth.
The IMF says Nigeria’s gross domestic product, which surpassed South Africa as the continent’s largest after updated figures were released in April, will grow 7% this year after expanding 5.4% in 2013.
Analysts say the naira isn't out of trouble yet, and warn of a self-reinforcing slide in the currency ahead.
“The central bank may face political pressure not to raise rates ahead of February’s general election,” Capital Economics analyst Jack Allen wrote in a note to clients. “But we think that the threat of a currency crisis is likely to trump these concerns.”
The naira’s drop placed Nigeria among the oil-rich nations hardest hit by a production glut that has prompted a 25% drop in Brent crude prices in recent months. The bruised ruble has also caused headaches for the Russian central bank, while the Norwegian krone and Canadian dollar have also dropped. Oil and natural gas account for 96% of export revenue in Africa’s top producer, and about 80% of government revenue, according to the International Monetary Fund.
Attempting to curtail the damage to its currency, the Central Bank of Nigeria on Thursday sought to temper dollar demand by barring importers of goods including electronics, generators and telecommunications equipment from procuring dollars at its foreign exchange auctions.
The bank also limited the amount of money lenders can deposit in the bank’s so-called Standing Deposit Facility to 7.5 billion naira, or about $44 million. That regulation should boost naira liquidity between banks, traders say.
But Nigeria’s foreign-currency reserves recently stood at $39.5 billion, much smaller than Russia’s $454 billion as of the end of September, limiting Nigeria’s ability to hold back the decline.
Other corners of Nigerian markets also felt the heat. The all share stock index dropped 4.1% to its lowest point in nearly 18 months and all three of Nigeria’s outstanding dollar-denominated bonds were trading marginally lower, according to Tradeweb.
The plunge in oil prices recently could put pressure on Nigeria’s budget just as President Goodluck Jonathan and state officials are expected to ramp up spending to curry political favor ahead of national polls set for February 2015.
“Investors with a contrarian view on oil may have ordinarily viewed now as an attractive opportunity to buy into the currency, but with the added uncertainty around elections, we’re not really seeing this,” said Razia Khan, head of Africa research at Standard Chartered.
A weaker naira could make it more difficult for the government and private investors to fund power, road and rail projects—officials say they need to diversify Nigeria’s economy and sustain strong growth.
The IMF says Nigeria’s gross domestic product, which surpassed South Africa as the continent’s largest after updated figures were released in April, will grow 7% this year after expanding 5.4% in 2013.
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