Central Bank of Nigeria has said that it will continue to support the naira as it has adequate reserves to keep defending the currency. Meanwhile the depreciation of the naira has prompted a sell off of the country’s stocks, with the all-share gauge posting the worst performance today.
“There is a great need to defend the currency because we do not want volatility,” Central Bank of Nigeria Deputy Governor Sarah Alade said. “Whenever there is need to intervene, we will do so.” The naira strengthened 2 percent to 162.13 per dollar as of 4:05 p.m. in Lagos, snapping three days of losses. The currency weakened 0.4 percent yesterday to 165.36 per dollar, the lowest level since Bloomberg started compiling data in 1999.
The Nigerian Stock Exchange All-Share Index fell 1.6 per cent by the close in Lagos, bringing its weekly decline to 4.9 per cent, the most since June.
Stocks, bonds and currencies from developing nations have been sold since the start of stimulus reduction by the Federal Reserve last month. Equities in Nigeria, fell 6.2 per cent this year, compared with a 4.7 per cent decline in the MSCI Emerging Markets Index. The naira has retreated 1.1 per cent this year while foreign reserves that Africa’s biggest oil producer uses to bolster the local currency dropped to $42 billion this week, the lowest since October 2012.
“All of these things are causing panic,” Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management Ltd., said. “For an international investor, if the currency is going to devalue, it will affect his own returns.”
Guaranty Trust Bank Plc , the country’s biggest lender by market value, dropped 5 per cent to N24.73, the lowest since Sept. 18. Nigerian Breweries Plc retreated 2.4 per cent to N142, a ninth day of declines in the longest stretch of losses since October 2008.
The naira has also been falling since the central bank last month removed the weekly limit of $250,000 that may be sold to a bureau de change. The central bank sells foreign currency at twice-weekly auctions to shore up the naira. It also sells dollars directly to lenders at irregular intervals.
The “central bank intervened heavily, which is impacting on the naira,” Kunle Ezun, an analyst at Ecobank Transnational Inc. in Lagos, said. “The central bank tried to cover gaps created by the short dollar supply at its last auction.”
The CBN sold $196.7 million at an auction Feb. 12, the lowest since Oct. 2. The bank will probably increase supplies at next week’s offers.
The central bank may increase cash reserve requirements for banks to hold government deposits for the second time this year to 100 per cent from 75 per cent, Governor Lamido Sanusi said at a conference on Feb. 12 in Lagos. It will probably raise the requirement on private funds to 15 per cent from 12 per cent, Sanusi said. The regulator raised the deposit level to tighten liquidity while keeping its benchmark lending rate at a record high of 12 per cent.
