Forget The Russian Ruble, Nigeria’s Naira Is In Trouble
Trading in the Nigerian Naira was halted on Thursday after traders were confused with a new rule introduced by the country’s central banks to try and limit speculation in the local currency that has seen it tumble against the dollar in the last quarter of this year.
Bloomberg reported that the Naira has dropped 12 percent to trade at 190 against the dollar since Oct. 1 as investors dropped Nigerian assets as the outlook for Africa’s biggest oil producer worsened with Brent crude prices almost halving since late June.
The currency is the second worst performing in sub-Saharan Africa this quarter after Malawi’s Kwacha.
The Central Bank of Nigeria (CBN) issued a circular earlier in the day that cut banks’ maximum foreign-exchange net-open position to zero of shareholder funds by the end of each business day from 1 percent previously. This significantly reduced the amount of dollars that foreign currency deals could hold at the end of the day, causing liquidity to drop significantly.
The central bank later updated the circular to say the change was temporary, but this was too late as trading had already been grounded.
“If it was their intention to stabilize or see some appreciation of the naira, it’s backfired,” Kevin Daly, senior portfolio manager at Aberdeen Asset Management Plc in London told Bloomberg.
The Nigeria government devalued its currency by nearly 10 percent in November and raised interest rates to record levels in an effort to stem the pressure on the naira but this has not help much as the local currency has remained hemmed in the upper limit of the 168 Naira preferred by CBN.
The country’s over depends on oil to fund budgetary functions and infrastructure development has been hurt by the recent tumble in crude prices on the global market following an oversupply in the US. This has dealt a heavy blow to Nigeria’s economy and its public finances.
Reuters reported that the naira closed at a record low on Wednesday, a day on which Finance Minister Ngozi Okonjo-Iweala also slashed Nigeria’s 2015 growth forecast in the budget speech.
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