Nigeria’s Rate Pledge Tested as Naira Tumbles With Oil


By Paul Wallace Nov 7, 2014 3:33 AM ET 0 Comments Email Print
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Source: STR/AFP/Getty Images
Godwin Emefiele, Nigeria's Central Bank Governor.
The naira’s plunge to an all-time low is threatening Nigerian central bank Governor Godwin Emefiele’s pledge to avoid raising interest rates before presidential elections in February.

Efforts by Africa’s biggest oil producer to stem the rout with dollar sales and a ban on import payments have been overwhelmed by crude’s tumble to a four-year low. The central bank will probably raise its benchmark rate, already at an all-time high of 12 percent, to avoid burning through the nation’s reserves after they fell to a three-month low of $38 billion, according to Capital Economics Ltd. in London.

“If the central bank is to prevent speculation that the naira will continue to fall, putting further upward pressure on prices, it may need to raise interest rates sooner rather than later,” Jack Allen, an assistant economist at Capital Economics, said in an e-mailed note yesterday. “The central bank may face political pressure not to raise rates. The threat of a currency crisis is likely to trump these concerns.”

Nigeria has recently slowed its market interventions after spending billions since mid-September to avoid moving the naira peg for the first time since 2011. The central bank sold $200 million of foreign exchange at an auction on Nov. 5, the least since Feb. 12.

The naira fell 1.3 percent to 172.18 per dollar by 9:28 a.m. in Lagos, a record low. The currency has declined 4.9 percent this quarter.

Oil Tumble

“They’re not willing to feed dollars when they know the broader market is against them,” Gareth Brickman, an analyst at ETM Analytics, said by phone from Johannesburg yesterday. “Drawing a line against a market that smells blood in the water can lead to doom pretty quickly.”

Africa’s largest economy banned paying for imported goods such as electronics, generators and telecommunications equipment, using foreign-exchange bought at bi-weekly auctions, according to a circular posted on the Abuja-based regulator’s website yesterday.

Nigeria, which relies on oil for 80 percent of government revenue, is facing lower export earnings after the average crude price among members of the Organization of Petroleum Exporting Countries dropped below $80 for the first time in four years. Reduced intervention boosts the chance of a 50-basis point increase in interest rates to 12.5 percent at the central bank’s Nov. 24-25 meeting, according to Capital Economics.

No Intervention

The bank offers the naira at 155 per dollar, plus or minus 3 percent, at twice-weekly auctions. Ibrahim Mu’azu, a spokesman for the central bank, said yesterday he didn’t know of any plans to devalue the currency.

“Either the CBN keeps intervening in the market to support the naira, in addition to the twice weekly auctions, or the naira is devalued to accommodate the current reality,” Kunle Ezun, a strategist in Lagos at Ecobank Transnational Inc., said in an e-mailed response to questions yesterday.

Emefiele, 53, took control of the central bank in June with a mandate to keep inflation, which has stayed above 8 percent since May, within a 6 percent to 9 percent target band. While he has said he favors lowering borrowing costs, the threat of rising government spending before the elections may spur price increases.

Emefiele’s predecessor, Lamido Sanusi, was suspended by President Goodluck Jonathan in February after Sanusi alleged the state-owned Nigerian National Petroleum Corp. had retained almost $20 billion in revenue that was due to the government. The NNPC denied the allegations. Sanusi originally told Jonathan last year that almost $50 billion wasn’t accounted for.

The naira’s decline may boost the cost of importing everything from fuel to food, threatening support forJonathan, who’s already under pressure for failing to stem deadly attacks by Islamist militants.

Violence in the northeast of the country, which imports 70 percent of its fuel needs due to inadequate refining capacity, is hurting agriculture and could trigger demand for imported food to fill the void left by local farmers.

“We’re seeing more foreign-exchange flexibility,” Samir Gadio, head of Africa strategy at Standard Chartered Plc in London, said in e-mailed comments. “Perhaps they do not want to burn FX reserves unnecessarily. It’s a risky strategy.”

To contact the reporter on this story: Paul Wallace in London at pwallace25@bloomberg.net

To contact the editors responsible for this story: Vernon Wessels at vwessels@bloomberg.net Emily Bowers, Chris Kay

http://www.bloomberg.com/news/2014-11-07/nigeria-s-rate-pledge-tested-as-naira-tumbles-with-oil.html?cmpid=yhoo

dint bother reading the above trash ....the first question that came to my mind on seeing the topic "nigeria is broke" was who is nigeria? Why is he broke? Does his brokeness also affect me? If when rich its richness does not affect me so why would it broke state affect me.

Thank God this is not coming from APC or APGA or ECOWAS or USA.
Jonathan must now go...finally for selling this country to his cronies.
He has to fix what he broke before leaving next year.
Jonathannnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn

A few of us saw this coming and it is only going to get worse if oil prices keep falling.
Iweala and co were sent to shape Nigeria economy for exploitation.The reason she removed tariffs from candles,toothpick,pencil,pen etc. she was even granting waivers for cooking pot and frying pans.
The rats are jumping the sinking ship.
They come in when the stock exchange is like e.g N10 , Artificially blow it up ,and remove their mugu money at N100.
Same people will then go and take a short position on the Nigerian economy.

oya pdp supporters, make una cme c dis one o, at least dis wasnt written by a nigerian

ichidodo:
The rag didn't say anything about broke but how Emefiele is refusing to defend the Naira but cutting import costs of Luxury goods which in the long run will reduce demand of dollars and halt the slide of the naira with the least input from our external reserves....

They don't have to specifically mention "broke" for us to see where the economy is headed. These are indeed very perilous times!! When the country's sovereignty is taking a beating from some marauding blood suckers due to a hugely demoralised armed forces, the country's economy/currency is taking a bashing from plunging international oil prices!! This twin evil can potentially wreck unimaginable havoc on every facet of our national life.

Our leaders have completely failed us and took that failure to an all new level under Jonathan. They've been looting the country's treasury with reckless abandon since 2011 as though money was going out of fashion with the finance minister providing the needed propaganda cover to stave off criticism and public scrutiny.

It is a pity these guys have amassed so much wealth they'd be effectively insulated themselves from the fall out of their irresponsible conducts, leaving the ordinary citizens to bear the brunt of such.

When all is said and done, I hope we at least are given a chance to say goodbye to Nigeria without losing a limb or two.

God help us.

Cc:
Archi
barcanista
neenar
ngeneukwuenu
ayukadaboss
gbawe
NgeneUkwenu
obiagelli
ibnsultan
egift
koboko69
demdem
kel4soft
sirniyeh
laykorn
mynd44
Donphilopus
Sweetlemon
size38
pendy97
PassingShot

Vote for gef in 2015 and buy a litre of pms @ #170.

SOS

Some are still trying to defend this madness. What a people.

ichidodo:
[color=#1980BC] [b] The rag didn't say anything about broke

You're not literate. Just take a back seat on this one, will you?

Please return Sanusi.

nduchucks:
Please return Sanusi.

Are you ok?

Not shocking.

Naija and Ghana are going to be on the same page soon.

GEJ till 3078

all4naija:
Now let's put the people back to work through construction of estates and apartments buildings. Nigeria should focus on diversifying the nation resources. What is wrong with understanding that?

South Africa MTN, DSTV and Shoprite should accept Naira in exchange for Rand, likewise Nigeria. It is time Africans do some part of the businesses on African currencies and the rest on dollars.

I agree with the text in the bold. And this might be the first time I've ever agreed with ya post cos it seems your head is permanently stuck in spouting western propaganda.

However, do those in-charge have the cerebral capacity to pull it off, apart from creating a bubble, and lying to the sheeple? And that is if they actually care, to be honest.

Missy89:
GEJ till 3078

Lmao...GEJ till the end of time!

Are you kl?

SirShymex:


Lmao...GEJ till the end of time!

Are you kl?

Ok was is kl? cool?

is that it?

then yes!

Missy89:


Ok was is kl? cool?

is that it?

then yes!

You done lost it!

Bring ya ar.se here and let me smack you back to the real world asap!

So you don't know what "kl" is in 2014?

**** in Taniods voice "No we are not broke, all is well... we would soon join G20 by 2020"
GEJ till.....

SirShymex:


You done lost it!

Bring ya ar.se here and let me smack you back to the real world asap!

So you don't know what "kl" is in 2014?

Kuala Lumpur?

Why wont nigeria be broke when its been run by a dull and clueless man and some bunch of thieves. Oshisko!

SirShymex:
Not shocking.

Naija and Ghana are going to be on the same page soon.

make u no just thinkam.
If those who read this report really think, they would discover that the CBN is tryn to hold down niara until things return back to normal in OPEC.
Another thing they will understnd is that Nigeria is cutting off importation and encouraging local manufacturers more. Therefore i dont see anything about being broke in this issue nd how someone can say nigeria will go ghana‘s way. Knowing that ghana rode on the wing of false hood for a long time before its crash.

Not shocking, when we the progressives and the patriots have been shouting that Madam NOI and Mr GEJ have been r@ping whatever is left of our economy

gej has used nigeria's money to throw parties

Akinsz:
Vote for gef in 2015 and buy a litre of pms @ #170.

Vote for gef in 2015 and pay 60% more for electricity for almost total darkness

Or you can vote for General Buhari who has promised to provide 24 hours a day electricity in a few short years.

Missy89:


Kuala Lumpur?

Lmao...it's King Los.

You defo. need some tip drill and ar.se spanking...you done lost ya cotton picking mind.

Chigold101:
make u no just thinkam.
If those who read this report really think, they would discover that the CBN is tryn to hold down niara until things return back to normal in OPEC.
Another thing they will understnd is that Nigeria is cutting off importation and encouraging local manufacturers more. Therefore i dont see anything about being broke in this issue nd how someone can say nigeria will go ghana‘s way. Knowing that ghana rode on the wing of false hood for a long time before its crash.

Lmao...nah, they're just gassing the bubble and the sheeple infected by acute stockholm syndrome.