Nigeria’s Naira Breached 200 per Dollar
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The Nigerian currency depreciated another 2.2%, pushing it to 202.50 per dollar, the most since 22 December. The recent postponement of the Nigerian Election only reinforces the likelihood of further devaluation of the West African currency.
The Nigerian currency depreciated another 2.2%, pushing it to 202.50 per dollar, the most since 22 December. The recent postponement of the Nigerian Election only reinforces the likelihood of further devaluation of the West African currency.
Over the past three months, the naira has fallen 17% and belongs among the top worst performing national currencies. Lanre Buluro, the head of research at the Primera Africa Securities Ltd. stated, “The investors and traders see higher uncertainties with the rescheduling of the election. Many are buying dollars with the expectant devaluation of naira before the election or after its completion.”
Most investors across the nation are delaying commitment of money to Nigeria as the violence by the Islamist group Boko Haram has escalated and prompted the government to push the elections back by 6 weeks. This will give President Goodluck Ebele Azikiwe Jonathan some extra time to rally support. This terrorist group is part of the JV team to which President Obama has referenced. Now, much of the Middle East and North Africa is under siege by this terrorist group.
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Central Bank Help Futile
Although the Central Bank is attempting to intervene and improve the dwindling economic condition, markets are shrugging off its attempts, rendering them futile. To cope with the currency loss, Nigeria’s central bank has raised the borrowing rate to a record 13% and the official exchange rate to 168 per dollar, from 155 in November 2014. As the ETM analysts quote, “The policy makers have retained their staidness in reconciliation and the more unconventional policy changes cannot be discounted.”
Nigeria’s Eurobond Yields Rise
The Central Bank has stayed on its policy to keep the currency strong and sold an undisclosed amount of dollars in the market to keep the naira below 200. Their approximately $500 million Eurobond issue yield recently rose another 10 basis points to 7.48%.
The Nigerian Stock Exchange All Share Index fell 0.9% to 29,103.21. Nigerian Central Bank Governor Godwin Emefiele, appointed almost a year ago, has focused on the efforts to halt the naira’s steady decline by employing measures that have dried up naira trading. In turn, JPMorgan Chase & Co issued a warning on January 16 that they may remove Nigeria from their bond indexes. According to Standard Chartered, foreign holdings of Nigerian debt have fallen by half since 2013.
Naira: a campaign tool
Election critics may seize this opportunity to state that Jonathan’s People’s Democratic Party is now seeking extra time to throw off the support for Muhhamadu Buhari, his main opponent. Buhari’s support comes from a united opposition that’s gaining steady support of the predominantly Christian South.
From an economist’s point of view, “The naira is being used as a campaign tool for the opposition party,” said Buluro from Primera. Nigeria’s economic setback will stretch out a few years so some authorities will now do all that is possible to help the opposition party.
