February 12, 2015
Nigeria’s naira weakened to more than 200 per dollar for the first time as the West African nation’s election postponement increased the likelihood that the continent’s worst-performing currency will be devalued.
The naira retreated 2.2 percent, the most since Dec. 22, to 202.50 per dollar as of 1:52 p.m. in Lagos. The naira has tumbled 17 percent over the past three months, the most among 24 currencies tracked by Bloomberg. It may depreciate to 263, prices on 12-month forward contracts show.
“Traders are seeing higher uncertainties in the market with the postponement of the election,” Lanre Buluro, head of research at Primera Africa Securities Ltd., said by phone from Lagos. “There is speculation on the naira with many buying dollars in anticipation of imminent devaluation before the election or after.”
Investors are delaying decisions to commit money to Nigeria as escalating violence by the Islamist group Boko Haram in the country’s northeastern region prompted the electoral commission to push back the vote by six weeks to March 28. Government opponents said the move will give President Goodluck Jonathan extra time to rally support that has been dwindling as a collapse in the price of oil hits the revenue of Africa’s biggest crude exporter.
The naira is “on a runaway train” with the market shrugging off intervention attempts by the central bank, Gareth Brickman and Catherine Bennett, Johannesburg-based market analysts at ETM Analytics, said in an e-mailed note. “The bank’s attempts at managing the exchange rate remain nothing short of futile.”
Nigeria’s central bank has reduced foreign-exchange reserves to a three-year low in a bid to defend the naira with dollar sales. In November, policy makers weakened the midpoint of the official exchange rate to 168 per dollar from 155 and raised the benchmark borrowing cost to a record 13 percent to stem losses in the currency.
“At this point the market has once again priced in a de facto devaluation for the bank to catch up to,” the ETM analysts wrote. “Policy makers have remained exceptionally stubborn in reconciling the reality of the situation and more unpredictable and unconventional policy changes cannot be discounted.”
The central bank sold an undisclosed amount of dollars in the market to try and keep the naira below 200, Kunle Ezun, an analyst at Ecobank Transnational Inc., said by phone from the city.
Yields on Nigeria’s $500 million of Eurobonds due July 2023 climbed 10 basis points to 7.48 percent, the highest since Feb. 2. The rates on the notes rose above those of April 2024 securities issued by Zambia, which has a lower credit rating, for the first time on record at the end of January. The 195-member Nigerian Stock Exchange All Share Index fell 0.9 percent to 29,103.21. The gauge is down 16 percent this year, the most among 93 primary equity indexes tracked by Bloomberg.
Godwin Emefiele, 53, appointed in June after Jonathan suspended predecessor Lamido Sanusi almost a year ago, has focused efforts on stemming the naira’s decline by using measures that almost crushed trading in the naira. The restrictions prompted JPMorgan Chase & Co. to warn Jan. 16 that it may remove Nigeria from bond indexes tracked by more than $200 billion of funds. Foreign holdings of domestic debt have fallen by half since 2013, according to Standard Chartered.
Critics of the election postponement say Jonathan’s ruling People’s Democratic Party is seeking more time to thwart a surge in support for his main opponent Muhammadu Buhari, a 72-year-old northern Muslim backed by a united opposition that’s gaining support in the predominantly Christian south.
“The naira is becoming a campaign tool for the opposition party, the authorities will want to do everything to provide support,” said Primera’s Buluro.