Nigerian central bank chief pleads for calm as naira tumbles - CNBC Africa

Nigerian central bank chief pleads for calm as naira tumbles

Financial

by Reuters 0

This week the naira crashed through the key level of 200 to the dollar. PHOTO: sunnewsonline

This is after figures showed the bank had been burning through more than 110 million dollars a day in a vain attempt to defend it.

The naira has crashed through the key level of 200 to the dollar this week in a rout sparked by weak oil prices and escalating tension over the postponement of a presidential election in Africa's biggest economy.

However, Central Bank of Nigeria (CBN) Governor Godwin Emefiele said it was "appropriately priced" despite a nearly 25 per cent slump against the dollar in the last three months, and investors should stay calm.

"We are not in the best of times but there's no need to panic," he told CNBC Africa in an interview. He ruled out an emergency Monetary Policy Committee meeting, and said floating the currency was not an option.

(WATCH VIDEO: Is it time to devalue the naira?)

In the latest update on its reserves, the CBN said its stockpile of dollars had dropped to 33.4 billion dollars as of 10 February, a decline of 1 billion dollars in nine trading sessions since 28 January.

Dealers noted further intervention during chaotic trading on Wednesday and Thursday. On both days, leading banks triggered an agreed 'circuit-breaker' to halt electronic trading because of the pace of the naira's fall.

The latest reserves data marked a dramatic escalation in efforts to stabilise the naira from the CBN, which last year forked out an average 20 million dollars a day to prop up the currency.

The naira ended Thursday at a new record closing low of 205.60 to the dollar, compared with the central bank's target range of 160-176.  

"SOMETHING'S GOT TO GIVE"

Naira derivatives betting on the future level of the currency now point to it collapsing to around 280 to the dollar in a year.

The failure to stem the rout by tightening domestic liquidity or pumping dollars into the foreign exchange market piles even more pressure on Emefiele to devalue the currency for the second time in three months.

Most analysts had assumed this would happen soon after a 14 February election, seen as a close race between President Goodluck Jonathan and ascetic former military ruler Muhammadu Buhari.

But that vote was postponed last week until March 28, ostensibly on security concerns, leaving Emefiele the unenviable choice of ploughing through billions more dollars of reserves in the next six weeks or taking huge political heat.

"You wonder how they're going to survive if you look at the pace reserves are falling," said Renaissance Capital analyst Yvonne Mhango in Johannesburg. "I don't entirely rule out something happening before March 28 Something's got to give."

BOND AUCTION FALLS SHORT

Nigeria relies on oil for 90 per cent of its foreign exchange, and the currency started to come under pressure in early November when the impact of the collapse in world crude prices started to be felt.

In another worrying sign for Abuja, which is facing a funding crunch due to the decline in oil revenues, a domestic bond auction fell short of expectations on Thursday, raising only 76 billion naira out of an intended 90 billion.

(READ MORE: The gradual fall of the naira)

The stock market has also come in for a pummelling, with the blue-chip NSE 30 Index dropping 2.7 per cent on Thursday to its lowest in more than two years.

Weighing on both equities and the currency in the longer-term is the fear of prolonged political stalemate or constitutional crisis in Africa's most populous nation, whose economy has habitually suffered around election time.

This weekend's vote was delayed after security forces said they could not guarantee the safety of voters. That has led to speculation that the military, which has largely stayed out of politics for 15 years, might be slipping back into old habits.

On Wednesday, the army denied any involvement in politics or taking sides between Jonathan and Buhari.

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