The naira slid to a new low on Tuesday, as investors worried about the impact of falling oil prices on Nigeria’s fragile finances shrugged off increasingly interventionist efforts by the central bank to prop up the currency.
It hit 173.35 against the dollar, taking its declines for the year to 8.4 percent, despite the central bank’s now regular daily offer of $3 million dollars to each of the country’s 21 commercial banks.
On Monday, some lenders eschewed the forex auction after the central bank, in a bid to curb speculation, restricted the margins they can make from their customers when selling the dollars on.
In Tuesday’s auction the central bank – which intervened on the market through all of last week – removed the margin cap, dealers said.
The naira’s decline, which has been extended since Finance Minister Ngozi Okojo-Iweala on Sunday cut state revenue estimates for 2015 by 6 percent following sharp declines in the price of Nigeria’s main export oil, also hit other local markets.
Borrowing costs on Nigerian government bonds rose sharply, with the benchmark 10-year yield up 38 basis points at 13.90 percent, while the main share index lost 1.67 percent.
Commenting on the sell-off in bonds, one dealer said: “Investors are worrying about the naira, and the possibility of a rate hike at the central bank’s next meeting.”
The central bank next meets on interest rates on Nov. 25.
Reuters
Okonjo-Iweala rejected calls for the government to print more naira to counter the effects of falling oil but said complementary monetary policy measures would be announced by the authorities soon.
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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.
The naira, meanwhile, has dropped further below the bank’s preferred trading band of 150-160, which it burst out of in May.
