Nigeria’s central bank said it has adequate reserves to keep defending the naira as the slumping currency prompted a selloff of the country’s stocks, with the all-share gauge posting the world’s worst performance today.
“There is a great need to defend the currency because we don’t want volatility,” Central Bank of Nigeria Deputy Governor Sarah Alade said by phone from Lagos today. “Whenever there is need to intervene, we will do so.”
The naira strengthened 2 percent to 162.13 per dollar as of 4:05 p.m. in Lagos, snapping three days of losses. The currency weakened 0.4 percent yesterday to 165.36 per dollar, the lowest level since Bloomberg started compiling data in 1999. The Nigerian Stock Exchange All-Share Index (NGSEINDX) fell 1.6 percent by the close in Lagos, bringing its weekly decline to 4.9 percent, the most since June.
Stocks, bonds and currencies from developing nations have been sold since the start of stimulus reduction by the Federal Reserve last month. Equities in Nigeria, Africa’s biggest oil producer, fell 6.2 percent this year, compared with a 4.7 percent decline in the MSCI Emerging Markets Index. The naira has retreated 1.1 percent this year while foreign reserves that Africa’s biggest oil producer uses to bolster the local currency dropped to $42 billion this week, the lowest since October 2012.
“All of these things are causing panic,” Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management Ltd., said by phone. “For an international investor, if the currency is going to devalue, it will affect his own returns.”
Guaranty Trust Bank Plc (GUARANTY), the country’s biggest lender by market value, dropped 5 percent to 24.73 naira, the lowest since Sept. 18. Nigerian Breweries Plc (NB) retreated 2.4 percent to 142 naira, a ninth day of declines in the longest stretch of losses since October 2008.
The naira has also been falling since the central bank last month removed the weekly limit of $250,000 that may be sold to a bureau de change. The central bank sells foreign currency at twice-weekly auctions to shore up the naira. It also sells dollars directly to lenders at irregular intervals.
The “central bank intervened heavily yesterday, which is impacting on the naira today,” Kunle Ezun, an analyst at Ecobank Transnational Inc. in Lagos, said by phone. “The central bank tried to cover gaps created by the short dollar supply at its last auction.”
The Abuja-based regulator sold $196.7 million at an auction Feb. 12, the lowest since Oct. 2, according to data compiled by Bloomberg. The bank will probably increase supplies at next week’s offers, Ezun said.
The central bank may increase cash reserve requirements for lenders to hold government deposits for the second time this year to 100 percent from 75 percent, Governor Lamido Sanusi said at a conference on Feb. 12 in Lagos. It will probably raise the requirement on private funds to 15 percent from 12 percent, Sanusi said. The regulator raised the deposit level to tighten liquidity while keeping its benchmark lending rate at a record high of 12 percent.
“To protect the naira over the next six months, we believe that the CBN will continue to use the CRR as its first policy option, rather than raising interest rates,” Kato Mukuru and Ronak Gadhia, Africa equity analysts at London-based Exotix Partners LLP, said in an e-mailed note today. “Reserves of $42 billion, and import cover of some 10 months, give plenty of ammunition to support the naira in the near term.”