The Central Bank of Nigeria (CBN) intervened again to prop up the naira on Thursday after its efforts to stamp out speculation by barring commercial banks from holding dollars failed to prevent the currency hitting another record low, reports Reuters.
Confused by a central bank edict restricting domestic dollar holdings, dealers initially refused to quote prices for the naira, which has lost more than 12 percent since September due to a collapse in the price of oil.
The standoff lasted for nearly an hour before Governor Godwin Emefiele confirmed that the emergency measures were designed to end speculative pressure on the currency of Africa’s biggest economy.
“We do not want speculators in this market any longer,” Emefiele told Reuters. “The banks are not supposed to hold any funds of their own. They are supposed to buy and sell currency on behalf of customers.”
Within minutes, dealers sent the naira to a record low of N188.85 against the greenback, before it recovered marginally to N187.30 at 1403 GMT after another round of dollar sales by the central bank, according to dealers.
The CBN officially devalued the currency by eight percent last month and widened its target trading band to N160-N176 against the dollar, but few analysts believe that level can hold, given dwindling state oil revenues and declining reserves.
As of December 8, foreign reserves stood at $35.95 billion, down nearly 20 percent from a year ago after attempts to defend the naira in the face of a near-halving of global oil prices in the last five months.
Analysts said regulatory interventions against “speculators” were unlikely to solve Nigeria’s basic problem — too few dollars coming in from oil sales.
“The fundamentals remain problematic — the fact that there is less supply of dollars than there is demand for dollars,” said Standard Bank currency analyst Yvette Babb. “That is not resolved by a one-off regulatory measure.”
Thursday’s decline for the naira followed a record closing low on Wednesday after finance minister, Ngozi Okonjo-Iweala, slashed the economic growth forecast in the 2015 budget.
Meanwhile, the Debt Management Office (DMO) sold N53.50 billion ($289.97 million) worth of sovereign debt at an auction on Wednesday, where yields climbed more than 200 basis points across the board on paper with maturities ranging between 3-year and 20-year.
The DMO said it sold N7.5 billion in the 3-year debt note at 15.49 percent, compared with 12 percent at the previous month’s auction. The debt office had initially offered N10 billion of the 3-year bond.
It sold N18 billion worth of 10-year paper at 15.2 percent, against 12.8 percent at the previous auction, while a total of N28 billion of the 20-year note was sold at 15.49 percent, compared with 13 percent last month.
The debt office sold less than the initially advertised amount of the 10-year note, but more of the 20-year bond — DMO had initially offered to sell 30 billion of the 10-year bond and 25 billion naira in the 20-year.
Nigerian bond yields have been on the rise since the central bank hiked the benchmark interest rate to 13 percent, while concerns on falling global oil prices have led to sell off by offshore investors in Nigerian debt.
