Nigeria’s naira fell 2.5 percent on Friday, despite central bank intervention, and it briefly touched a record low on concerns OPEC’s decision not to cut oil output would put further pressure on Nigeria’s shaky finances.
The central bank has struggled to keep the naira within its preferred band even after devaluing the currency by 8 percent on Tuesday in a bid to halt a slide in Nigeria’s foreign reserves. Oil sales provide around 95 percent of those reserves.
The naira briefly touched a record low of 180.90, according to Thomson Reuters dealing data, before the bank intervened with dollar sales to lift it to 178.75 at the close, dealers said.
The bank’s target band after devaluation is 5 percent plus or minus 168 to the dollar, but doubts remain about whether it went far enough given the bleak outlook for oil prices. The naira has consistently tested the lower end of the new band.
“The market is saying: ‘We like what you’re doing, but have you done enough?’ Now the oil price is at $71 a barrel, all bets are off,” Bismarck Rewane, economist and CEO of Lagos-based consultancy Finance Derivatives, said.
Foreign reserves in Africa’s leading energy producer dropped 17.3 percent year-on-year to $36.9 billion by November 26, according to central bank data released on Friday.
Falling world oil prices and a retreat from emerging markets have put pressure on the currencies of several oil exporters, including the Russian rouble and Angola’s kwanza.
Brent crude fell more than $6 to $71.25 a barrel after OPEC ministers meeting in Vienna left the group’s output ceiling unchanged despite huge global oversupply, marking a shift away from its long-standing policy of defending prices.
In Nigeria, Saudi Arabia’s decision on Thursday to block calls from poorer OPEC members to cut oil output came as a disappointment to many.
Oil prices have lost a third of their value since June and with OPEC’s decision set to send them lower still, pressure on Nigeria’s foreign currency reserves and the naira is set to increase.
“Many importers are bringing forward their obligations in view of the persistent fall in oil prices,” one dealer said.
“A number of them … anticipate a further depreciation of the naira, so they are stockpiling the dollar.”
Pressure on the currency risks reigniting inflation, which has stabilised in single digits for two years, creating a headache for President Goodluck Jonathan who will seek a second term in elections in February.
Unlike Gulf countries, which have squirreled away large foreign currency reserves, Nigeria’s oil savings fell during the boom times, partly owing to theft of its oil by criminal gangs, hurting output, and partly because too much money was spent by the government.
Finance Minister Ngozi Okonjo-Iweala admitted on Thursday that a significant portion of the billions of dollars drained from the oil savings account over the past two years was distributed to powerful governors instead of being saved for a “rainy day”.
“The sun is not shining any more and there’s not much left in the Excess Crude (oil savings) Account,” Rewane said.
The country’s fiscal problems are adding to challenges to stability posed by an Islamist insurgency raging in the northeast, seen as the country’s biggest security threat.