Naira slumps to record low against dollar as forwards rise

Naira plunged to a record low and forwards rose, suggesting traders expect further depreciation, as the country struggles amid a dearth of dollars.

According to Bloomberg report monitored by Business247 News Online, the naira fell 6.3 per cent to 348.75 against the dollar by 3:08 p.m. in Lagos today. Three-month non-deliverable forward contracts climbed 4.1 per cent to 364.5 versus the greenback, heading for a record close. Contracts maturing in a year rose 3.5 per cent to 403, also a record.

Naira has slumped 38 per cent since the Central Bank of Nigeria (CBN) ended a 16-month peg of 197-199 per dollar on June 20. The capital controls needed to defend the fix sent foreign investors fleeing and took the West African country to the brink of recession. The International Monetary Fund forecasts a 1.8 percent contraction of the economy this year.

“There’s still a lot of demand for dollars,” Craig Thompson of Nyon, Switzerland-based brokerage Continental Capital Partners SA, said by phone. “The central bank has been supplying them. They sold some at 309 yesterday to keep the rate down. They’ve been selling dollars most days to keep it going above 320 and have done their best to try and keep it closing around 310. Managing the exchange rate is difficult because there’s pent-up demand.”

Foreign-exchange flows have been slow to trickle in to the country since the devaluation. The dollar shortage has been exacerbated by militant attacks on oil facilities in the south of the country, which have sent crude production tumbling to an almost three-decade low. Nigeria relies on oil for 90 percent of export earnings.

The benchmark equity index fell 0.1 percent, its first drop in four days, to 27,402.99. It’s down 8.9 percent in the past year. Yields on Nigeria’s $500 million Eurobond due in July 2023 were little changed at 6.38 percent.

Local banks are unable to meet much of the demand for dollars, forcing their customers on to the black market. There, the naira trades at 394 per dollar, around 11 per cent weaker than the official rate.

“There is no liquidity” in the interbank foreign-exchange market, Kunle Ezun, an analyst at Ecobank Transnational Inc. in Lagos, said by phone. The central bank sold dollars on Aug. 15 and 16 and will continue intervening, he said.

“They won’t want to see this jump,” Ezun said. “They will come in, may be tomorrow, to bring it down to 320 or 330.” The report explained.