Nigeria’s naira weakened against the dollar, extending its worst weekly performance in a year, amid speculation the state-owned oil company sold limited foreign-exchange to the market.
The currency of Africa’s biggest crude producer fell for a fourth day as dollar sales from Nigerian National Petroleum Corp. were less than expected, said Samir Gadio, a London-based emerging markets strategist at Standard Bank Group Ltd., the continent’s largest lender. Yields on domestic bonds due January 2022 rose to their highest since October yesterday, according to data compiled by Bloomberg.
The naira weakened “amid less significant than expected NNPC flows, weaker confidence, limited capital inflows,” Gadio said in an e-mailed reply to questions today. “It is likely that the Central Bank of Nigeria will intervene in the market in the near term and sell dollars directly to the banks to defend its nominal monetary policy anchor.”
Oil companies, including Abuja-based NNPC, are the second-biggest source of dollars after the Central Bank of Nigeria, which offers foreign currency at auctions on Mondays and Wednesdays to maintain exchange-rate stability.
Nigeria’s currency weakened as much as 0.4 percent before trading 0.3 percent lower at 159.35 per dollar as of 12:25 p.m. in Lagos, the commercial capital. That extended its weekly decline to 0.7 percent, the biggest fall since the five days through June 8, 2012. The yield on the 2022 securities rose 38 basis points, or 0.38 percentage point, to 13.33 percent yesterday, the highest since Oct. 30, according to the data compiled by Bloomberg.
“Because the dollar-naira exchange rate is heavily managed, the unit has not experienced the same type of weakness against the dollar as displayed by more flexible emerging market currencies,” said Gadio. Central bank Governor Lamido Sanusi “is likely to take all necessary measures to defend exchange rate stability during the remainder of his term,” he said.
Nigeria’s central bank shouldn’t rush to cut interest rates even as inflation is forecast to remain within target this year and it may even raise rates or the cash-reserve ratio if government spending becomes a threat to price stability, Sanusi said in an interview last month.
The Central Bank of Nigeria left its policy rate unchanged at a record high of 12 percent on May 21, concerned that spending was poised to rise as the government battles Islamist insurgents in the northeast. The bank raised the level of reserves that lenders must hold in cash to 12 percent from 8 percent in July 2012. Inflation (NGCPIYOY) has stayed under 10 percent for four consecutive months, meeting the bank’s target.
Nigeria’s has $48.4 billion of foreign-exchange reserves as of June 5, according to central bank data. Insparo Asset Management is “confident” of a strong naira outlook due to the “willingness” of the Abuja-based regulator to use them to support the currency and fight inflation, Graham Stock, chief strategist at the London-based fund, said in an interview yesterday.
Yields on the nation’s $500 million of Eurobonds due January 2021 declined 10 basis points to 5.015 percent today. Ghana’s cedi was unchanged at 2.0015 per dollar in Accra.
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