• Monday, May 27, 2024
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Naira touches record low after CBN devalues currency

Nigeria’s opaque external reserves drains confidence in FX reform


The naira touched a record low against the dollar on Wednesday, a day after the Central Bank of Nigeria (CBN) devalued the currency, and it was trading lower than the bank’s target band even after rebounding.

CBN devalued the naira by 8 percent and raised interest rates sharply on Tuesday, as it sought to stem losses to its foreign reserves from defending the currency against weaker oil prices.

The naira fell to a record low of 178.85 to the dollar shortly after the market opened, but it rebounded to firm almost 1 percent to 177.05 after two oil companies sold dollars.

That level was still below the new bank’s target band of 5 percent plus or minus 168 to the dollar after the devaluation.

Total sold $20 million while Shell sold an undisclosed amount of dollars, which helped boost dollar liquidity on the interbank market, dealers said. Dealers also said there were market expectations that the central bank to intervene.

The local currency had closed at 177.30 on Monday before the central bank announcement.

Several emerging economies have seen their currencies fall owing to hot money outflows this year, as the U.S. Federal Reserve tapered its stimulus programme. Currencies from economies sensitive to oil prices such as the naira and the Russian rouble have been hardest hit.

Angola’s Kwanza fell to a record low of 100.895 to the dollar on Wednesday.

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According to its website, the CBN has spent an average of $27.9 million a day this year defending the naira, but the currency has dropped by 10 percent versus the dollar anyway, on concerns that lower global oil prices are here to stay.

Central bank Governor Godwin Emefiele told an investors’ conference call on Tuesday that Nigeria’s foreign reserves stood at $36.5 billion, down 18.3 percent from a year ago, depleted by efforts to support the currency.