$380 million spent to defend naira in two days

The Central Bank of Nigeria (CBN) spent $380 million in two days to prop up the ailing naira after it conducted special forex interventions to shore up the local currency, Reuters reports.

Latest data on the central bank website on Tuesday showed that reserves fell to $32.66 billion as at February 16, down by 1.2 per cent from $33.04 billion by February 13.

Foreign reserves have fallen by 5.3 percent from a month ago.

The central bank intervened for the third straight session on Tuesday to defend the naira by selling dollars below its official band but the currency traded weaker in the interbank market.

Dollar sales by an oil firm were traded at a weaker level than in the earlier sale by the central bank, dealers said.

The central bank once again sold dollars below its official band, at N198 naira to the US currency, and again banned banks from reselling dollars bought at its currency auction to other banks to curb speculation.

All the trades by the bank have been outside its own target band of N160-N176 to the dollar set in November when it devalued the currency by 8 percent to save its foreign reserves.

“The market is weaker than the central bank rate … counterparties are selling dollars based on how they were able to buy it,” a dealer at a major lender said.

Addax Petroleum sold $7 million to some lenders to buy naira for its local obligations, testing the naira’s true level as the currency immediately weakened to 203.50 to the dollar.

Tight interbank liquidity undermines Nigeria’s credibility as a smoothly functioning capital market, which could trigger its ejection from a JP Morgan emerging market bond index.

Godwin Emefiele, CBN governor, recently said there was no need for panic over the recent depreciation of the naira against the dollar, even as he reassured investors that the central bank will continue to meet legitimate foreign exchange demand.

Emefiele had maintained that the naira was appropriately priced. He had also said the central bank was doing everything within its power to ensure price stability.

He added that the economy would survive the elections, as it had done in past elections, assuring investors that the coming elections would be conducted peacefully.

He had also urged foreign investors to retain confidence in the Nigerian economy and capital market as the country would not disintegrate.

The CBN governor explained: “We are not in the best of times but there’s no need to panic. The Nigerian monetary authorities as well as fiscal authorities are doing everything they can to respond to these vulnerabilities.”