Bloomberg News

Naira Falls First Day in Three as Nigeria Bank May Lower Target

November 02, 2011

Nov. 1 (Bloomberg) -- Nigeria’s naira fell for the first day in three against the U.S. currency after central bank Governor Lamido Sanusi said he may lower the official exchange rate to 155-156 per dollar.

The currency of Africa’s top oil producer weakened 1.1 percent to 161 per dollar by 12:14 p.m. in the freely moving interbank market, according to data compiled by Bloomberg. The central bank aims to keep the naira within a 3 percentage-point band above or below 150 per dollar at twice-weekly foreign- currency auctions, where the marginal rate is taken as the prevailing exchange rate.

The Central Bank of Nigeria will make its stance on the currency clear in the next week or two and plans to keep the exchange rate stable over the next year, Sanusi said yesterday. The central bank has been struggling to keep the naira within its target as oil prices declined and demand for imports surged.

“We believe this would happen around the turn of the year in preparation for the 2012 financial year,” Matthew Pearson, the London-based head of Africa equity sales at Standard Bank Group Ltd., wrote in an e-mailed note today. “Perhaps the overriding desire has been for the CBN to be ‘driving the change on its terms’ rather than risk being forced into the change at an illiquid time of the year or by market forces.”

Mounting demand for dollars had pushed the naira outside its band targeted by the central bank, with the currency weakening to a record 166.6 per dollar on Oct. 10. Nigeria sold $200 million at a foreign-currency auction yesterday, less than the $252.3 million demanded by lenders. The marginal rate depreciated 0.1 percent to 150.25 per dollar from 150.05 naira at the previous auction on Oct. 26.

Devaluation ‘Inevitable’

“It is inevitable that the naira has to be lowered from 150 per dollar,” Yvonne Mhango, a Johannesburg-based economist with Renaissance Capital, wrote in an e-mailed response to questions. “The fact that it has traded much lower than 150 in 2011, and even lower than 160 in the recent past, is indicative of what the market thinks the value of the naira is. The naira may be trading lower following Sanusi’s comments yesterday because it’s the first time that he has clearly spoken of a devaluation.”

Sanusi responded to the naira’s decline by raising the benchmark interest rate by 275 basis points to 12 percent on Oct. 10, the highest level since the rate was introduced in 2007. Inflation accelerated to 10.3 percent in September from 9.3 percent in the previous month, the statistics office said on Oct. 14.

Weaker Naira

“We believe the announcement of the new foreign-exchange target will likely see the naira trade weaker from the current levels,” Ridle Markus and Dumisani Ngwenya, Johannesburg-based analysts at Absa Capital, wrote in a report today. “Despite aggressive monetary tightening in early October, the naira has been trading in a wide range in recent weeks.”

The country’s gross reserves stood at $33 billion on Oct. 27, compared with $32.3 billion at the end of last year, according to data on the central bank’s website. Nigerian benchmark Bonny Light crude has fallen 15 percent from a three- year high on April 8.

Oil accounts for 80 percent of government revenue and 98 percent of exports, Sanusi said yesterday.

“The likelihood that the oil price will, on average, be lower in 2012 than it was in 2011 and the missed opportunity to improve the foreign-currency reserves position in 2011 as well as the downward pressure on reserves suggests that a devaluation is inevitable, in our view,” Mhango said.

Ghana’s cedi slipped less than 0.1 percent to 1.5965 per dollar as of 11:17 a.m. in Accra, according to data compiled by Bloomberg.

--Editors: Ana Monteiro, James Kraus

To contact the reporter on this story: Chris Kay in Abuja at

To contact the editor responsible for this story: Gavin Serkin at

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