Nigeria Intervenes With Dollars as Naira Slides on JPMorgan

Nigeria’s central bank sold dollars to stem the naira’s drop to a record low after JPMorgan Chase & Co. said the debt of Africa’s biggest economy may be cut from its local-currency emerging-market indexes.

Nigeria was placed on Index Watch Negative for JPMorgan’s GBI-EM indexes after central bank measures announced in December reduced foreign exchange and bond trading, making it difficult for foreign investors to replicate the gauge, the New-York based lender said in an e-mailed statement Friday. The Abuja-based regulator intervened after the announcement, according to Guaranty Trust Bank Plc.

“You’ve got a bunch of global investors who are benchmarked to the GBI and Nigeria is 1.8 percent of the index,” Kevin Daly, who has cut his holdings in naira debt to zero among the $13 billion in assets he manages at Aberdeen Asset Management Plc in London, said by phone. “I doubt some of those investors would want to own it if it’s not in the index.”

With Nigeria dependent on crude exports for 70 percent of government revenue, the more than 50 percent drop in prices since last year’s peak in June sparked investor outflows that policy makers have tried to stem by devaluing the naira and raising interest rates to a record 13 percent. The currency weakened 11 percent over the past three months, the most among 24 African currencies tracked by Bloomberg.

Nigerians will vote on Feb. 14 in presidential elections in the face of increasing violence by the Islamist militant group Boko Haram.

Yields Soar

The naira depreciated to an all-time low of 188.48 against the dollar Friday. It pared losses after the regulator’s move to trade 0.4 percent stronger at 185.05 as of 7:35 p.m. in Lagos. The currency is poised to end the week 3.5 percent down, the most since Nov. 14.

The country’s inclusion in the index will be assessed over the next three to five months, JPMorgan said. Paul Nwabuikwu, a spokesman for Nigeria’s finance ministry, didn’t answer calls to his mobile phone seeking comment. Ibrahim Mu’azu, a spokesman for the Central Bank of Nigeria, didn’t answer calls to his mobile phones seeking comment.

“It would be a big blow” if Africa’s most-populous nation was excluded from the indexes, Adebayo Omogoroye, head of trading at Guaranty Trust, the biggest lender by market value in Nigeria, said by phone from Lagos.

‘Remedial Action’

Average yields on naira-denominated government debt soared 2.5 percentage points in the past three months, compared with a drop of 47 basis points through Thursday for emerging-market local-currency securities, according to Bloomberg indexes. Nigerian bonds were the worst performers after Russia among 31 developing nations in the period, losing 16 percent for dollar investors.

The Abuja-based central bank limited lenders’ foreign-exchange net-open positions to zero from 1 percent of shareholders’ funds at the end of each day in December. It loosened the rule this week by increasing the limit to 0.1 percent.

“There was a remedial action by the central bank on Jan. 12 to restore liquidity,” Patience Oniha, executive director in charge of market development at the Debt Management Office, said by phone from the capital, Abuja. “It needs to take effect while I think every other measure that needs to be done by the authorities to create liquidity will be done.”

‘Appropriate Measures’

Daily trading volumes for the naira are still just $20 million to $30 million, compared with about $300 million to $500 million six months ago, according to Samir Gadio, head of African strategy at Standard Chartered Plc.

“Sourcing FX has become a nightmare,” Gadio said by phone from London. “Theoretically, there are no capital controls and you can take out whatever you want. But the reality is that it’s much more difficult.”

Commercial banks should source dollars from the central bank if they are struggling to access foreign exchange for their clients, Central Bank Governor Godwin Emefiele said on Jan. 6. The regulator’s monetary policy committee meets on interest rates next week, with a decision set to be announced on Jan. 20.

While Nigeria could still keep its GBI-EM status, investors will want the regulator to clarify how it will respond to JPMorgan’s review, Gadio said.

“They’re going to have to take appropriate measures in the coming weeks,” he said.

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