Nigeria’s naira fell to a record low against the
dollar and stocks declined the most among global
markets on speculation Africa ’s biggest economy
will devalue its currency for a second time since 2011
as oil prices tumbled.
“Foreign investors are exiting the market,” Pabina
Yinkere, head of research at Lagos-based Vetiva
Capital Management Ltd., said by phone. “They
don’t want to be stuck in Nigeria when the naira
will be devalued. The fall in the oil price has given
a challenging outlook to the economy.”
Nigeria, which relies on oil for 80 percent of
government revenue, is facing lower export earnings
as the average crude price among members of the
Organization of Petroleum Exporting Countries
drops below $80 for the first time in four years
and the commodity falls into a bear market. The
central bank has run foreign-exchange reserves to a
three-month low to defend the naira and avoid
raising interest rates or devaluing the currency
before elections in February.
The Nigerian Stock Exchange All Share Index
(NGSEINDX) fell 4.1 percent the most since 2010.
The naira dropped as much as 2.7 percent, the
steepest depreciation in almost three years, before
trading at 170.02 per dollar as of 7:11 p.m. in Lagos.
The naira is trading at a discount of more than 6
percent than the upper limit of the official rate,
suggesting traders are betting on an imminent
devaluation. The central bank sells naira to
commercial lenders at 155 per dollar, plus or minus 3
percent, at regular auctions held Mondays and
Wednesday.
Previous Devaluation
Ibrahim Mu’azu, a spokesman for the Central Bank
of Nigeria, said in a text message today that he’s
not aware of any plan or decision to devalue the
currency. Finance Ministry spokesman Paul
Nwabuikwu said he couldn’t immediately comment.
The bank will continue to defend the naira,
Kingsley Moghalu, who stepped down as a deputy
governor yesterday, said by phone from Abuja.
Nigeria last devalued its currency in November 2011
by lowering the midpoint of the target band to 155
per dollar from 150 to support growth in Africa’s
biggest oil producer.
Twelve-month non-deliverable forwards dropped 2.5
percent to 194.43 per dollar today, signaling that
traders anticipate a further 12 percent depreciation in
a year, according to data compiled by Bloomberg.
Since mid-September, the central bank has used
reserves to sell dollars outside of regular auctions
held Mondays and Wednesdays, according to
Standard Chartered Plc. The absence of central bank
intervention today exacerbated the currency’s
decline, said Gareth Brickman, an analyst at
Johannesburg-based ETM Analytics, by phone.
“They seem to be trying to tiptoe through this
period,” he said. “I expect they will be back in the
market when conditions are more favorable for them
and it looks less like they’re panic selling. The
market would soak up every last dollar if they did
that.”
Currency Defense
Morten Bugge, the chief investment officer at
Global Evolution AS, said the central bank has
enough foreign reserves to defend the naira and will
probably avoid devaluation before the general
election in February. While foreign-currency
reserves dropped to a three-month low of $38.3
billion, it is still enough to cover about seven
months of imports, according to data compiled by
Bloomberg. “The chance of devaluing it now is
close to none,” said Bugge, who oversees $2.3
billion emerging-market assets, including naira-
denominated bonds, by phone. “The market is
testing the central bank. The ball is in their court.”
Banned Payments
The central bank banned paying for some imports,
including electronics, generators and
telecommunications equipment, using foreign-
exchange bought at biweekly auctions, according to
a circular posted on the Abuja-based regulator’s
website today. It also issued rules to lenders on
accessing its standing deposit facility, according to
a separate notice.
“We’re seeing more foreign-exchange flexibility,”
Samir Gadio, head of Africa strategy at Standard
Chartered in London , said in e-mailed comments.
“Perhaps they do not want to burn FX reserves
unnecessarily. It’s a risky strategy though as the
market will now look for the topside of dollar-naira
and also because the lower rates will reduce the
incentive to hold naira fixed-income assets.”
Until recently, market participants were confident
the central bank would step in to strengthen the
naira if it weakened much below 165 against the
dollar, said Kunle Ezun, a strategist at Ecobank
Transnational Inc., by phone from Lagos.
“In the last couple of weeks, once the naira got to
166, we were sure they’d come in and calm the
market to send it back to about 165,” he said.
“They seemed comfortable around 165.”
In the stock market, Lafarge Africa Plc (WAPCO)
and Ashaka Cement Plc, makers of the building
material, fell 9.7 percent, leading decliners. Dangote
Sugar Refinery Plc (DANGSUGA) dropped to the
lowest since November 2012, while Oando Plc, a
crude producer, slipped 9.6 percent to the lowest in
more than five months. Lenders also slid, with
United Bank for Africa Plc decreasing to the
lowest since December 2012, while Sterling Bank Plc
fell the most since February 2013.
Oil prices extended losses after OPEC cut demand
forecasts and the European Central Bank said it is
ready to implement further stimulus measures.



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