Lagos - Nigeria’s naira fell to a record low against the US dollar and the nation’s stocks plunged the most in the world on speculation the currency of Africa’s biggest economy will be devalued because of lower oil prices.
“Foreign investors are exiting the market,” Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management, said by phone.
“They don’t want to be stuck in Nigeria when the naira will be devalued. The fall in the oil price has given a challenging outlook to the economy.”
The Nigerian Stock Exchange All Share Index fell 20 percent from its 2014 high, heading for a bear market.
It’s down an 11th day in the longest stretch of losses since January 2009.
The gauge slid 4.4 percent, the most among 93 global indexes monitored by Bloomberg, as it headed for the biggest one-day decline in more than four years.
The naira depreciated the most since May 6.
Nigeria, which relies on oil for 80 percent of government revenue, is facing lower export earnings as members of the Organization of Petroleum Exporting Countries average crude price drops below $80 (R891) for the first time in four years and the commodity falls into a bear market.
The central bank has pledged to use foreign-exchange reserves to defend the naira and avoid raising interest rates or devaluing the currency before elections in February.
The currency’s decline was exacerbated by the absence of intervention by the central bank, which will probably increase once oil prices become more stable, said Gareth Brickman, an analyst at Johannesburg-based ETM, by phone.
‘Panic Selling’
“They seem to be trying to tiptoe through this period,” he said.
“I expect they will be back in the market when conditions are more favourable for them and it looks less like they’re panic selling. The market would soak up every last dollar if they did that.”
The naira, the worst-performing currency among 24 African nations tracked by Bloomberg today, dropped as much as 2.6 percent and was trading 2.1 percent lower at 170.74 per dollar as of 2:31 pm in Lagos.
The currency has declined 6.2 percent this year.
The NSE All Share Index dropped to 34 370.48, with 48 shares trading lower, six up and 141 unchanged.
Since mid-September, the central bank has used reserves to sell dollars outside of regular auctions held Mondays and Wednesdays, according to Standard Chartered.
At auctions, the central bank offers the currency at 155 per dollar, plus or minus 3 percent.
Gross reserves decreased 12 percent this year to $38.3 billion on November 3.
Central Bank of Nigeria spokesman Ibrahim Mu’azu didn’t answer two calls to his mobile phone or immediately reply to a text message seeking comment. Finance Ministry spokesman Paul Nwabuikwu said he couldn’t immediately comment.
The bank will continue to defend the naira, Kingsley Moghalu, who stepped down as a deputy governor yesterday, said by phone from Abuja.
Until recently, market participants were confident the central bank would step in to strengthen the naira if it weakened much below 165 against the dollar, said Kunle Ezun, a strategist at Ecobank Transnational, by phone from Lagos.
“In the last couple of weeks, once the naira got to 166, we were sure they’d come in and calm the market to send it back to about 165,” he said.
“They seemed comfortable around 165.” - Bloomberg News