• Friday, June 21, 2024
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Naira trade halted again as Nigeria rout intensifies

Brewing up a mess in Nigeria with a controversial Naira rebrand

Electronic trading in naira was halted for the second day running on Thursday as the currency of Africa’s biggest economy continued to crumple due to weak oil prices and escalating tension over this week’s delayed election.

Shortly after triggering a self-imposed ‘circuit-breaker’ agreed among themselves last month, dealers said the central bank was ringing round trying to gauge their appetite for dollars in what is turning into a full-scale currency rout.

Amid the confusion, the naira was quoted at a new record low of 206.60 to the dollar, extending its slide since the start of November to nearly 25 percent.

The decline piles even more pressure on Central Bank of Nigeria (CBN) governor Godwin Emefiele to devalue the currency for the second time in three months.

However, analysts say looming elections – a Feb. 14 vote has been postponed to March 28, ostensibly due to security concerns – are putting him in an impossible decision. So far, his main weapons to defend the currency have been to spend foreign reserves or tighten naira liquidity.

Naira derivatives betting on the future level of the currency point to it collapsing to around 280 to the dollar in a year’s time.

Nigeria relies on oil revenues for 90 percent of its foreign exchange, and the currency started to come under pressure in early November when the impact of the collapse in oil prices started to be felt.

Read also: Bond sale fails to meet target, investors seek higher yields

Emefiele officially devalued to 160-176 to the dollar at the end of November, but the naira immediately weakened beyond that range.

Its decline has accelerated over the last week as concerns have grown about a prolonged political stalemate or constitutional crisis in Africa’s most populous nation.

The election commission postponed the vote because the security forces said they could not guarantee security, leading to speculation that Nigeria’s armed forces, which has stayed out of politics for 15 years, might be slipping back into old habits.

On Wednesday, the army denied any involvement in politics and said it remained neutral in the electoral contest between President Goodluck Jonathan and challenger Muhammadu Buhari, a former military ruler.

In another worrying sign for the government, which is already facing a funding crisis due to the decline in oil revenues, a domestic bond auction failed to reach its target, selling only 76.5 billion naira, rather than the intended 90 billion.