The naira slid to a new low yesterday, as investors worried about the impact of falling oil prices on Nigeria’s fragile finances despite the interventionist efforts by the Central Bank of Nigeria (CBN) to prop up the currency. Further weakening of the naira came on a day international economists said that the Federal Government’s pledge to trim spending in the face of plunging oil prices may fall short of what’s required as Nigeria, Africa’s biggest crude producer, heads into an election year.
Naira falls again despite CBN’s intervention
Yesterday, the naira hit a year low at N173.35 against the dollar, taking its declines for the year to 8.4 per cent, despite the CBN’s now regular daily offer of $3 million dollars to each of the country’s 21 commercial banks. Last Monday, some lenders eschewed the forex auction after the apex bank, in a bid to curb speculation, restricted the margins they can make from their customers when selling the dollars.
At yesterday’s auction, the central bank, which intervened on the market through all of last week, removed the margin cap, dealers said. The naira has dropped further below the CBN’s preferred trading band of N150-160, which it burst out of in May.
The naira’s decline, which has been extended since the Federal Government, last Sunday, cut state revenue estimates for 2015 by 6 per cent following sharp declines in oil prices in the global market, also hit other local markets. Continue after the cut..
Borrowing costs on Nigerian government bonds rose sharply, with the benchmark 10-year yield up 38 basis points at 13.90 per cent, while the main share index lost 1.67 per cent. Commenting on the selloff in bonds, one dealer said: “Investors are worrying about the naira, and the possibility of a rate hike at the central bank’s next meeting.”
The central bank will meet on interest rates on November 25. Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, while announcing the cut in budgetary projection for 2015, had rejected calls for the government to print more naira to counter the effects of falling oil prices. But she said complementary monetary policy measures would be announced by the authorities soon.
Meanwhile, the Federal Government’s proposal to cut expenditure by 6 per cent may be insufficient to address investors’ concerns after oil prices plunged by about 30 per cent since July, said economists, including Alan Cameron, of FCMB Group Plc (FCMB) in London. The budget approval process will probably also face delays because of the 2015 elections.
“What’s being proposed here is not proportional to the decline in the oil price, so it’s probably overstating it to say this is a prelude to an austerity budget,” Cameron said in an e-mailed response to questions from Bloomberg. Okonjo-Iweala said last Sunday she would propose to lower the budgeted benchmark oil price to $73 per barrel next year from $78 this year. Brent crude fell to a four-year low of $76.76 a barrel on November 14. Even if oil prices remain close to the government’s estimate, production is under pressure because of crude theft in the Niger Delta region, threatening government revenue.
“The problem has been that even if the oil price scenario on which it is based has been realistic, the oil production number has not been,” David Cowan, an Africa economist at Citigroup Inc., said by phone from London.
However, Okonjo-Iweala has said that the nation’s long-awaited Petroleum Industry Bill (PIB) is not expected to be passed before the general election in February 2015. The bill, which is expected to reform Nigeria’s oil taxes and licences, and to overhaul the Nigerian National Petroleum Corporation (NNPC), has dragged on for over five years because of political wrangling over its many clauses. Okonjo-Iweala told a conference call with investors that the oil sector had seen low foreign direct investment (FDI) due to the delay in the passage of PIB.
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