The naira opened at a record low on Monday on concerns that falling oil prices will lead to lower government revenues and with dealers waiting to see if the central bank will do anything to help the currency.
The central bank is widely expected to keep interest rates on hold at the end of a two-day meeting on Tuesday despite some pressure for an increase to support the naira which is down almost 11 percent this year.
The price of oil, Nigeria’s main export, has plunged, adding to worries about government finances. Political tensions ahead of elections in February and a violent insurgency waged mostly in the northeast by the Islamist group Boko Haram have also contributed to concerns about stability in Africa’s biggest economy and No. 1 crude oil producer.
The central bank has spent billions of dollars of reserves intervening to prop up the currency this year but it opened at a fresh low of 178.25 to the greenback on Monday, down 0.45 percent from its previous close of 177.45.
It later firmed to 177.47 naira in volatile trade against the dollar at 0920 GMT, still a long way from the central bank’s preferred 150-160 trading band that the currency left in May.
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Dealers expected the central bank to sell dollars again on Monday to meet dollar demand on the interbank market.
The bank unexpectedly sold dollars at 158.41 naira at its window last week, having previously auctioned the greenback at 156.59 naira, unnerving dealers worried about the risk of a possible devaluation.
Finance Minister Ngozi Okonjo-Iweala has said monetary policy measures would soon be announced to complement government’s decision to cut 2015 spending and rejected calls to print more naira to counter the effects of falling oil prices.
According to figures on the central bank’s website, it has this year spent an average of $26.6 million a day defending the naira, which has tracked falls in other emerging market currencies – notably those in economies that are particularly sensitive to changes in the oil price.
As of Nov. 11, the bank’s liquid reserves had fallen by $5.77 billion, or 15.7 percent, so far this year to $36.69 billion, the figures show.
Reuters
