The Nigerian central bank devalued the official currency rate by 15% on Friday, in a move to converge a multiple exchange rate regime which it has used to manage pressure on the naira, traders said.
The currency in Nigeria, which is Africa’s biggest economy and relies on crude sales for 90% of foreign exchange earnings, has come under pressure after oil prices plunged following a disagreement between Russia and Saudi Arabia over a deeper production cut. The coronavirus outbreak has also hit global demand for oil.
The central bank on Friday sold the U.S. dollar to local Jaiz Bank at 360 naira on the official market, weaker than the 306 where it was previously pegged for more than two years, traders said.
Traders said no quotes were shown on Friday for the naira on the official market, which is supported by the central bank. Previously, traders had refused to show quotes on the over-the-counter spot market after the bank vowed to crack down on speculators.
The central bank did not respond to a request for comment on the currency adjustment. Jaiz Bank also declined comment.
The adjustment comes after the impact of the oil price plunge spread across asset classes in Nigeria, causing investors to widen spreads on the bond market, sell stocks and weaken the country’s dollar reserves.
Last week JP Morgan said it expected Nigeria to devalue its currency by around 10% to 400 naira for the over-the-counter spot market widely quoted by foreign investors by the end of June.
FX RATE CONVERGENCE
Currency analysts at one Nigerian asset manager said Friday’s adjustment signalled that the central bank favoured a convergence of its multiple exchange rates in order to realign the currency as an effective tool for resource allocation.
Nigeria has operated a multiple exchange rate regime for years, which it has used to manage pressure on the currency. On the over-the-counter spot market few trades were done on Friday at 380 naira on thin liquidity, against 370 in the previous session, traders said.
The bank also adjusted the forex rate for exchange bureaux to 380 naira per dollar from 360, in a sign it wanted to achieve a uniform exchange rate for the currency, said Aminu Gwadade, head of the exchange bureaux association.
Central bank governor Godwin Emefiele, who supports a strong currency, backed by President Muhammadu Buhari, has resisted calls for a devaluation, saying that market fundamentals do not support such move.
But he has been burning through its reserve of $36 billion, which is now down 16% from a year ago, to prop up the naira.
Since the virus outbreak, which started in China, spread to Nigeria local importers have been front-loading dollar demand.
Ratings agency Fitch has said that Nigeria’s B+ rating, which has a negative outlook, could face problems if a prolonged attempt to defend the country’s currency peg ate heavily into its international reserves.
On Wednesday, Emefiele said he will inject $3.27 billion to boost local production and stimulate the economy.
Nigeria has reported 12 cases of the coronavirus, with no deaths so far.