Nigeria’s overnight interbank lending rate soared to a record high of 100 percent on Tuesday, signalling a sharp tightening of naira supply as the currency hit 200 to the dollar for the first time.
The weekend decision to postpone presidential elections by six weeks, combined with plummeting oil prices, have damaged investor sentiment towards Nigeria, driving the naira to a succession of lows despite central bank efforts to prop it up.
The central bank said on Tuesday the foreign exchange market was understandably nervous after the decision to postpone elections originally set for Feb. 14, but said it was nothing to worry about. The bank is committed to sustaining a “stable and orderly” market, it added.
The naira fell sharply on Tuesday to a fresh low of 200 to the dollar, despite a central bank intervention. It later firmed but ended at a record closing low of 199.90. The naira had closed at 196.50 on Monday.
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“Capital flight has picked up, reflecting investor uncertainty. The rise in (overnight) rates will increase day-to-day funding of private sector operations in the run-up to the elections. Both will result in slower growth in Q1,” said Angus Downie, head of economic research at Ecobank.
Citing security concerns, Nigeria’s electoral commission postponed the presidential election until March 28, unnerving foreign governments and investors.
The election pits incumbent Goodluck Jonathan against former military ruler Muhammadu Buhari, in what is likely to be the most hotly contested poll since the end of army rule in 1999.
Naira liquidity dropped on Tuesday after dealers paid for forex and bonds purchased the previous day, when the interbank rate was 60 percent.
The central bank soaked up liquidity through a 30 billion naira open market operation and sold $199.9 million at its twice-weekly forex auction at 168 naira on Monday.
Dealers said the cash to fund these purchases was withdrawn from the banking system on Tuesday.
The central bank has been intervening directly with dollar sales to lenders to support the local currency but not enough to quench demand, which it has attributed to speculation.
Reuters
