Nigerian central bank chief pleads for calm as naira tumbles

Nigeria’s central bank chief insists that there is “no need to panic” about a slide in the currency, despite figures showing that the bank had burned through over 110 million U.S. dollars a day, whilst trying to defend the Naira.

LAGOS, NIGERIA (FEBRUARY 12, 2015) (REUTERS) – Nigeria’s central bank chief said on Thursday (February 12), that there was “no need to panic” about a slide in the currency, after figures showed the bank had been burning through more than 110 million US 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 percent slump against the dollar in the last three months, and investors should stay calm.

“There’s no need for anybody to panic, the Nigerian economy remains in our view very, very resilient. With gross domestic product growing at the rate of about 6.5 percent, yes we do expect that unfortunately it may drop even as low as the growth rate of 5.5 to 6 percent in 2015 but this still ranks amongst some of the growth rate that we’ve seen, particularly a higher margin of frontier markets in the world today,” Emefiele said, before ringing the closing bell at Nigeria’s stock exchange.

He ruled out an emergency Monetary Policy Committee meeting, and said floating the currency was not an option.

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

Dealers noted further intervention during chaotic trading on Wednesday (February 11) 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.

Most businessmen who use dollars for their imports and exports businesses have been affected by the plummeting naira.

Onyekachi Ukomadu, a businessman based in Lagos, who is involved in freighting goods from outside the country says his business has witnessed a downturn since December.

“We’ve tried to limit the amount of foreign currency we take at a point in time. Before now, we could actually make purchases, enough foreign currency to last us for a quarter say from January to March but now we can’t do that because we don’t know what’s going to happen the next day, so all we do is just take just as much as we need for a particular operation and wait for the next and keep your ears open to find out what’s happening, so our ability to plan on the long term has been affected and hindered severely,” he said.

Bureau De Change owners have also been hit hard by the naira fall.

Bureau De Change worker, Abdultamid Abdul-Azeez said they experience a loss when they have to sell dollars at a weaker price.

“When it’s going up, it’s like an advantage to us, it’s only that when it’s coming down that when we have some problems because when it comes down and we have …. we bought it on high price, we end up selling it at a loss,” he said.

The latest reserves data marked a dramatic escalation in efforts to stabilise the naira from the CBN, which last year forked out an average of 20 million US 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.

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 February 14 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.

Nigerian Economist, Bismarck Rewane says the market is likely to stabilise after the presidential elections in March.

“Because of the uncertainty surrounding elections obviously we expect the markets to react and after a while the markets will settle down like the Central Bank governor said, Nigeria is not going anywhere so I don’t think there is cause for alarm but just cause for concern in terms, but the election has been fixed, they will hold and after the elections, results will be announced and the market will then settle down..settle down as expected,” Bismarck said.

Nigeria relies on oil for 90 percent 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.

The stock market has also come in for a pummelling, with the blue-chip NSF 30 Index dropping 2.7 percent 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.