Nigeria’s interbank foreign exchange market remained frozen yesterday as dealers waited to see how the central bank would act to stabilise the local naira after it fell sharply against the dollar.
Bank governor Chukwuma Soludo said on Wednesday the central bank was ready to intervene from yesterday to ensure stability after dollar supply all but dried up amid unprecedented demand and after banks stopped quoting spreads.
“For those who are speculating on the naira, we’ll make sure that they bear heavy losses,” said Soludo. “There’s absolutely no cause for alarm.” He said the central bank would meet all demand at a market-determined exchange rate and that the bank was ready to buy and sell as necessary.
One dealer said: “The market still remains closed. We are waiting for the central bank intervention. The central bank has called around asking for quotes but it has yet to do anything.”
The naira weakened close to 8% to almost 130 to the dollar on Tuesday as dealers digested the effect of next year’s budget, announced by the president, and reacted to what appeared to be a managed depreciation of the naira .
The central bank allowed the naira, broadly stable for months, to depreciate further against the dollar at its bi-weekly auction on Wednesday, selling at between 127-129 naira compared with about 117 naira a week ago.
It sold only $180m on Wednesday and $100m on Monday, despite demand of about $2b n, leaving banks scrambling for dollars from other sources. Africa’s biggest oil-producing state was selling more than $800m last month.
Nigeria’s cash reserves dropped 4,3% to $55,9b n last month, the central bank said yesterday.
The shortage of dollars had prevented trading in naira between Nigeria’s commercial banks, which demanded more than $1b n of US currency at auctions in the past month, Citigroup said.
Oil production in Nigeria would drop to 2,29-million barrels a day next year from 2,45-million barrels this year, President Umaru Yar’Adua said this week when announcing the national budget. Crude accounts for about 80% of the west African government’s revenue and 90% of exports. Crude prices have tumbled as much as 69% since reaching a record $147,27 in July.
Banks’ demand for dollars has increased as investors pull out of emerging-market assets amid the worsening financial crisis .
Nigeria’s benchmark stock index is headed for its first annual decline in nine years after falling 46%, according to data cited by stock exchange spokesman Sola Oni.
“A lot of foreign investors are exiting the country, which has generated huge demand for dollars,” said Rubens Iwakura, a London-based currency trader at BNP Paribas , the bank with the most accurate exchange-rate forecasts in a Bloomberg survey last year.
“If the central bank continues to disappoint the market by limiting dollar sales it could precipitate further weakness in the currency,” Iwakura said.
The naira might weaken to 135 naira to the dollar this month if the central bank persisted in restricting the sale of dollars to commercial banks, Iwakura said before Soludo’s comments.
Banks demanded $1,3b n in a November 26 auction, 12 times the amount sold, according to Standard Bank.
The central bank sold $180m in foreign reserves yesterday to commercial banks, according to Standard Bank, Africa’s biggest lender. Reuters, Bloomberg