Naira Falls to Record Low as Stocks Fall Most in World

Nigeria’s naira fell to a record low against the dollar and stocks declined the most among global markets on speculation Africa’s biggest economy will devalue its currency for a second time since 2011 as oil prices tumbled.

“Foreign investors are exiting the market,” Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management Ltd., said by phone. “They don’t want to be stuck in Nigeria when the naira will be devalued. The fall in the oil price has given a challenging outlook to the economy.”

Nigeria, which relies on oil for 80 percent of government revenue, is facing lower export earnings as the average crude price among members of the Organization of Petroleum Exporting Countries drops below $80 for the first time in four years and the commodity falls into a bear market. The central bank has run foreign-exchange reserves to a three-month low to defend the naira and avoid raising interest rates or devaluing the currency before elections in February.

The Nigerian Stock Exchange All Share Index fell 4.1 percent the most since 2010. The naira dropped as much as 2.7 percent, the steepest depreciation in almost three years, before trading at 170.02 per dollar as of 7:11 p.m. in Lagos.

The naira is trading at a discount of more than 6 percent than the upper limit of the official rate, suggesting traders are betting on an imminent devaluation. The central bank sells naira to commercial lenders at 155 per dollar, plus or minus 3 percent, at regular auctions held Mondays and Wednesday.

Previous Devaluation

Ibrahim Mu’azu, a spokesman for the Central Bank of Nigeria, said in a text message today that he’s not aware of any plan or decision to devalue the currency. Finance Ministry spokesman Paul Nwabuikwu said he couldn’t immediately comment. The bank will continue to defend the naira, Kingsley Moghalu, who stepped down as a deputy governor yesterday, said by phone from Abuja.

Nigeria last devalued its currency in November 2011 by lowering the midpoint of the target band to 155 per dollar from 150 to support growth in Africa’s biggest oil producer.

Twelve-month non-deliverable forwards dropped 2.5 percent to 194.43 per dollar today, signaling that traders anticipate a further 12 percent depreciation in a year, according to data compiled by Bloomberg.

Since mid-September, the central bank has used reserves to sell dollars outside of regular auctions held Mondays and Wednesdays, according to Standard Chartered Plc. The absence of central bank intervention today exacerbated the currency’s decline, said Gareth Brickman, an analyst at Johannesburg-based ETM Analytics, by phone. “They seem to be trying to tiptoe through this period,” he said. “I expect they will be back in the market when conditions are more favorable for them and it looks less like they’re panic selling. The market would soak up every last dollar if they did that.”

Currency Defense

Morten Bugge, the chief investment officer at Global Evolution AS, said the central bank has enough foreign reserves to defend the naira and will probably avoid devaluation before the general election in February. While foreign-currency reserves dropped to a three-month low of $38.3 billion, it is still enough to cover about seven months of imports, according to data compiled by Bloomberg. “The chance of devaluing it now is close to none,” said Bugge, who oversees $2.3 billion emerging-market assets, including naira-denominated bonds, by phone. “The market is testing the central bank. The ball is in their court.”

Banned Payments

The central bank banned paying for some imports, including electronics, generators and telecommunications equipment, using foreign-exchange bought at biweekly auctions, according to a circular posted on the Abuja-based regulator’s website today. It also issued rules to lenders on accessing its standing deposit facility, according to a separate notice.

“We’re seeing more foreign-exchange flexibility,” Samir Gadio, head of Africa strategy at Standard Chartered in London, said in e-mailed comments. “Perhaps they do not want to burn FX reserves unnecessarily. It’s a risky strategy though as the market will now look for the topside of dollar-naira and also because the lower rates will reduce the incentive to hold naira fixed-income assets.”

Until recently, market participants were confident the central bank would step in to strengthen the naira if it weakened much below 165 against the dollar, said Kunle Ezun, a strategist at Ecobank Transnational Inc., by phone from Lagos.

“In the last couple of weeks, once the naira got to 166, we were sure they’d come in and calm the market to send it back to about 165,” he said. “They seemed comfortable around 165.”

In the stock market, Lafarge Africa Plc and Ashaka Cement Plc, makers of the building material, fell 9.7 percent, leading decliners. Dangote Sugar Refinery Plc dropped to the lowest since November 2012, while Oando Plc, a crude producer, slipped 9.6 percent to the lowest in more than five months. Lenders also slid, with United Bank for Africa Plc decreasing to the lowest since December 2012, while Sterling Bank Plc fell the most since February 2013.

Oil prices extended losses after OPEC cut demand forecasts and the European Central Bank said it is ready to implement further stimulus measures.

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