Nigeria’s central bank failed to keep the naira within its new target band again on Monday and the currency posted a record low closing level as investors continued to fret about the impact of plunging oil prices on Africa’s biggest economy.
The central bank devalued the currency by 8 percent against the dollar last Tuesday in a bid to halt a decline in the foreign reserves of Africa’s leading energy producer, but has struggled to keep the currency in its targeted range since then.
Oil sales provide around 95 percent of Nigeria’s foreign exchange and the naira is being driven down by concerns that the falling oil price will stretch Nigeria’s finances even further.
Yesterday, the central bank sold an undisclosed amount of dollars to commercial banks, but dealers said it was not sufficient to lift the naira, which closed 2.9 percent weaker than its previous close on Friday and 4.4 percent below the lower end of the bank’s new target band.
The naira touched an intraday low of 184.42 to the dollar before the bank’s intervention. Afterwards, it recovered very slightly to end at 184.10 naira to the dollar, a record low closing level.
The central bank’s target band since the devaluation is 5 percent plus or minus 168 to the dollar, but doubts remain about whether the devaluation went far enough given the likelihood of continuing low oil prices and the fact that Nigeria’s oil savings were being depleted even when crude prices were at a record high.
The coming weeks will test the bank’s ability to maintain that level, as forex reserves are still being run down.
Nigeria’s share index fell 1.8 percent yesterday, dragged lower by oil stocks Oando and Seplat .
Pressure on the currency from lower oil prices risks reigniting inflation, which for the past two years has stabilised in single digits for the first time in more than five years.
Nigeria’s economic troubles come at a bad time for President Goodluck Jonathan, who will seek re-election in polls scheduled for February 2015.
Brent crude oil, which has fallen by a third since June, touched a five-year low below $68 yesterday before recovering some losses as investors looked for a price floor after OPEC’s decision last week not to cut production.
Barclays yesterday lowered its expected average Brent crude price for 2015 to $72 a barrel, from $93 previously, in a sign analysts have become more bearish after the OPEC meeting. (Additional reporting by Oludare Mayowa in Lagos; Editing by Susan Fenton)