- Central bank seen intervening to limit currency’s decline
- Forward contracts show traders expect further weakness
Nigeria’s naira plunged to a record low and forwards rose, suggesting traders expect further depreciation, as Africa’s second-largest oil producer struggles amid a dearth of dollars.
The naira fell 6.3 percent to 348.75 against the dollar by 3:08 p.m. in Lagos, the commercial capital. Three-month non-deliverable forward contracts climbed 4.1 percent to 364.5 versus the greenback, heading for a record close. Contracts maturing in a year rose 3.5 percent to 403, also a record.
Nigeria’s currency has slumped 38 percent since the central bank ended a 16-month peg of 197-199 per dollar on June 20. The capital controls needed to defend the fix sent foreign investors fleeing and took the West African country to the brink of recession. The International Monetary Fund forecasts a 1.8 percent contraction of the economy this year.
“There’s still a lot of demand for dollars,” Craig Thompson of Nyon, Switzerland-based brokerage Continental Capital Partners SA, said by phone. “The central bank has been supplying them. They sold some at 309 yesterday to keep the rate down. They’ve been selling dollars most days to keep it going above 320 and have done their best to try and keep it closing around 310. Managing the exchange rate is difficult because there’s pent-up demand.”
Foreign-exchange flows have been slow to trickle in to the country since the devaluation. The dollar shortage has been exacerbated by militant attacks on oil facilities in the south of the country, which have sent crude production tumbling to an almost three-decade low. Nigeria relies on oil for 90 percent of export earnings.
The benchmark equity index fell 0.1 percent, its first drop in four days, to 27,402.99. It’s down 8.9 percent in the past year. Yields on Nigeria’s $500 million Eurobond due in July 2023 were little changed at 6.38 percent.
Local banks are unable to meet much of the demand for dollars, forcing their customers on to the black market. There, the naira trades at 394 per dollar, around 11 percent weaker than the official rate.
“There is no liquidity” in the interbank foreign-exchange market, Kunle Ezun, an analyst at Ecobank Transnational Inc. in Lagos, said by phone. The central bank sold dollars on Aug. 15 and 16 and will continue intervening, he said.
“They won’t want to see this jump,” Ezun said. “They will come in, maybe tomorrow, to bring it down to 320 or 330.”