Daniel Magnowski and Paul Wallace Abuja
GAINS by Nigeria’s currency are saving central bank governor Godwin Emefiele from having to raise interest rates four days before elections.
The naira, which reached a record low of 206.32 per dollar on February 12, has since advanced 3.7 percent after the bank imposed restrictions to protect the currency of Africa’s largest economy.
Nigeria’s local-currency bonds have risen 2 percent in dollar terms since the end of February, the most after Russia and the Dominican Republic among 31 emerging markets, Bloomberg indices show.
Africa’s largest oil producer has been hammered by a more than 50 percent plunge in the price of crude, its main export, since June.
The International Monetary Fund cut its 2015 growth forecast for Nigeria to 4.8 percent, from 6.3 percent last year and about half the average rate over the past 15 years, while Standard & Poor’s (S&P) downgraded the country’s credit rating last week.
“The naira seems to have stabilised momentarily, and the transition to the new currency system has been relatively smooth,” said John Ashbourne, Africa economist at Capital Economics in London.
“The Central Bank of Nigeria certainly avoided a disaster,” he said.
The currency’s rebound gave the Monetary Policy Committee room to keep the benchmark lending rate at 13 percent, according to all 23 economists surveyed by Bloomberg.
The committee was due to announce its decision later yesterday.
The drop in oil prices has slashed foreign-exchange reserves needed to defend the currency, prompting Emefiele to raise the policy rate for the first time in three years in November by 1 percentage point and devalue the naira.
The central bank introduced a new trading system on February 13, under which banks can only buy dollars in the interbank market when they have matching orders from customers who need foreign exchange for imports.
Five days later the regulator abandoned weekly foreign-exchange auctions, effectively devaluing the naira for the second time in three months, helping to stabilise the currency.
With Nigeria’s finances under pressure, S&P lowered its assessment on the country one level to B+, four levels below investment grade, on March 20, while changing its outlook to stable from negative.
The naira was unchanged at 199.05 per dollar yesterday morning in Lagos.
The March 28 vote is set to be the country’s most closely-fought election since the end of military rule in 1999. – Bloomberg