Nigeria’s central bank intervened again to prop up the naira on Thursday after its efforts to stamp out speculation by barring commercial banks from holding dollars failed to prevent the currency hitting another record low.
Confused by a central bank edict restricting domestic dollar holdings, dealers initially refused to quote prices for the naira, which has lost more than 12 percent since September due to a collapse in the price of oil, Nigeria’s main export.
The standoff lasted for nearly an hour before Governor Godwin Emefiele confirmed that the emergency measures were designed to end speculative pressure on the currency of Africa’s biggest economy.
“We do not want speculators in this market any longer,” Emefiele told Reuters. “The banks are not supposed to hold any funds of their own. They are supposed to buy and sell currency on behalf of customers.”
Within minutes, dealers sent the naira to a record low of 188.85 against the greenback, before it recovered marginally to 187.30 at 1403 GMT after another round of dollar sales by the central bank, according to dealers.
Nigeria officially devalued the currency by eight percent last month and widened its target trading band to 160-176 against the dollar, but few analysts believe that level can hold, given dwindling state oil revenues and declining reserves.
As of Dec. 8, foreign reserves stood at $35.95 billion, down nearly 20 percent from a year ago after attempts to defend the naira in the face of a near-halving of global oil prices in the last five months.
Analysts said regulatory interventions against “speculators” were unlikely to solve Nigeria’s basic problem — too few dollars coming in from oil sales.
“The fundamentals remain problematic — the fact that there is less supply of dollars than there is demand for dollars,” said Standard Bank currency analyst Yvette Babb. “That is not resolved by a one-off regulatory measure.”
Thursday’s decline for the naira followed a record closing low on Wednesday after Nigerian Finance Minister Ngozi Okonjo-Iweala slashed the economic growth forecast in her 2015 budget. (Reuters) –