By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-The naira on Thursday declined to its record low to two (2) percent s Brent crude extended losses from the worst levels in four (4) years, eroding revenue in Nigeria, a Bloomberg report said.
The report affirmed that while the Central Bank of Nigeria (CBN) intervened in November 07 to help the naira to its biggest one-day gain in three (3) years, intervening in the market has reduced Nigeria’s foreign reserve to a four (4) month low of $37.8 billion.
The report quoted Godwin Emefiele, governor of the CBN as saying that the apex bank doesn’t target a level for the naira in the interbank market and will keep monitoring it.
“There’s no need for anybody to panic or worry,” Emefiele, 53, said in a phone interview yesterday from Abuja, the capital. “The central bank has always intervened. We know our reserves can support nine months of imports, which is far above the minimum expected. We believe we’re very safe,” the CBN governor said.
According to the report, Sewa Wusu, head of research,Sterling Capital Markets Limited said if oil prices continue to drop it will affect the country’s ability to generate dollars earnings. “That will put pressure on our local currency. That is why the naira continues to drop,” Wusu added.
The report further affirmed that the naira weakened as low as 173.15 per dollar before paring losses to trade at 172.84 per dollar as of 10:58 a.m. in , Lagos. The naira is said to be the biggest decliner among 24 African currencies monitored by Bloomberg on Thursday, while the Brent crude extended losses from a four-year low, falling as much as 1 percent to $79.55 a barrel.
“While the governor is correct that the import cover ratio is quite robust, the worry is more on the financial side of the current account with respect to portfolio outflows, which could naturally be exacerbated by negative speculation against the currency,” the report quoted ETM Analytics analysts Gareth Brickman and Catherine Bennett in an e-mailed note.
“The central bank’s policy errors last week are coming back to haunt it,” the ETM Analytics analysts added.
The CBN on November 06 said it restricted banks’ use of the standing deposit facility, which allows companies to earn interest on excess cash, in an attempt to encourage lending to local businesses. ‘’The move didn’t weaken the naira because banks used their surplus liquidity to buy short-term central bank bonds,’’ the report quoted Emefiele as saying.
“After that decision, most of them moved their money to the open market operations window,” he said. “We took all that money,” he added.
On the ban on payment for imported goods such as electronics, generators and telecommunications equipment with foreign exchange bought at bi-weekly auctions.“We did that because we wanted to encourage to people who are importing items we could produce locally to begin to look at producing them locally,” the CBN governor said.
Danat Abdrakhmanov, money manager at Eaton Vance Corp said restricting access to the standing deposit facility sowed confusion in the market and had the same effect as an interest-rate cut, when the central bank should be considering increases,
Sarah Alade said Nigeria’s central bank has been selling dollars to banks outside its twice-weekly auctions since the naira’s drop on the morning of November 07. “We have been intervening in the market since Friday,” Alade was quoted as saying.
Also, Abiola Rasaq, head of research at UBA Capital affirmed that the market is actually gauging the ability of the CBN to stabilize the naira. “You may have the will to do something, but you may not have the ability to push it through,” Rasaq said.
