Yesterday’s 23 percent devaluation of the currency of fellow oil producer Kazakhstan amid an Emerging Markets (EM) selloff is leading the Central Bank of Nigeria (CBN) to re-iterate its position that the naira is appropriately valued and that speculators would lose bets made against the currency.
“We haven’t seen any reason so far to institute a change in the foreign-exchange policies,” Ugochukwu Okoroafor, a spokesman for the CBN, said on Thursday.
“The preponderance of foreign currency in the country has led to speculative attacks on the naira. People who have done it in the hope we’ll devalue will be hurt.”
The naira has closely tracked Kazakhstan’s currency (the Tenge) over the past four years, leading analyst to forecast that the CBN would be eventually forced to devalue in the near future, especially with oil prices trending towards the $30 mark.
Oil prices and Emerging Market currencies are falling as investors question the strength of the world’s second largest economy, China.
South Africa’s rand dropped yesterday to a 13 1/2-year low against the dollar, while currencies of countries from Brazil to Russia and Mexico fell also.
U.S. crude oil was down 50 cents at $40.30 a barrel by 1030 GMT, yesterday, after hitting a new 6-1/2-year low of $40.21.
Nigeria’s economy is reeling from the slide as oil revenue accounts for 95 percent of export earnings.
Nigerian banks exposed to the oil and gas sector may also see loan losses rise in the next two quarters.
Nigerian banks have exposure of up to $185 million as a result of the bankruptcy of one oil producer Afren, which went into receivership last month after low oil prices hurt its balance sheet.
“According to Afren documents, Nigerian banks have at least a $185mn principal exposure to Afren. Zenith has $100mn to OML26, $5mn to Ebok; Access has $50mn to Okwok/OML113 (Aje), $5mn to Ebok; and Stanbic has $25mn to Ebok,” Renaissance Capital analysts led by Adesoji Solanke, said in an August 19 note.
Nigerian Stocks fell again yesterday, as investors preferred to remain on the sidelines amid the global selloff and weak oil prices.
The NSE – ASI lost 0.98 percent to close at 29.747 points.
The naira has traded largely unchanged at the 199 per dollar mark in the interbank market since March 2015.
The gap between the interbank and the black market naira dollar rates had widened in the past few months as the naira traded as low as N240 per dollar before recovering to around N217.
Foreign investors have shied away from investing in Nigerian assets as they wait to see how low the naira could go, amid policy inertia and lack of clarity by the Muhammadu Buhari government.
“Genuine demand for foreign exchange will be met by the Central Bank, but once it comes as a result of speculation, we’ll fight back,” Okoroafor said.