Naira Pares Losses After 18-Year Low on 2012 Depreciation Fears
Nigeria’s naira pared its losses against the dollar after dropping to the weakest on record on speculation that a rise in government spending and removal of fuel subsidies will cause further depreciation next year.
The currency of Africa’s biggest oil producer declined by 1 percent to the lowest level since at least March 22, 1994, before cutting the losses 0.4 percent to 163.93 per dollar as of 2:03 p.m. in Lagos, according to data compiled by Bloomberg.
The government plans to increase expenditure in 2012 by 6 percent to 4.8 trillion naira ($29 billion), President Goodluck Jonathan said in a budget speech to lawmakers on Dec. 13. Jonathan, who won a four-year term in office in April, is under pressure to curb spending on wages to free up funds that can be used to build power plants and houses in Africa’s most populous nation.
“The possible removal of fuel subsidy will increase inflationary pressure,” Bismarck Rewane, managing director of Financial Derivatives company Ltd., based in Lagos, said in an e-mailed note. Rewane expects “increased liquidity to pose a risk to monetary stability and exchange rate.” The naira is expected to depreciate to 160 a dollar in 2012 at the official auction and 163 to a dollar at the interbank, he said.
The central bank on Nov. 21 lowered the midpoint of its exchange-rate band to 155 naira per dollar from 150 naira as rising imports and weakening oil prices increased pressure on the currency. Sub-Saharan Africa’s second-biggest economy depends on oil exports for more than 95 percent of foreign income, according to the Finance Ministry.
Ghana’s cedi depreciated less than 0.1 percent to 1.6400 per dollar in Accra, the capital.
To contact the reporter on this story: Emele Onu in Lagos at firstname.lastname@example.org
To contact the editor responsible for this story: Dulue Mbachu at email@example.com