Nigeria’s naira hit record lows against the dollar on Monday before central bank decisions that analysts say may include the second currency devaluation in two months for Africa’s top oil producer.
The naira, which has been hammered by the collapse in oil prices, fell 3.6% to a record low of 191.85/$ before recovering some ground after the central bank, two domestic banks and an energy firm sold dollars, according to dealers.
But it still booked its weakest close on record at 187.10 to the dollar, suggesting commercial banks in Nigeria think the central bank may opt for a repeat on Tuesday of its November devaluation.
Oil was at $79 a barrel on November 25, when the bank lowered its target band 8% to 160-176 naira to the dollar, but since then it has dropped more than a third, worsening central bank governor Godwin Emefiele’s concerns about dwindling reserves.
Crude oil accounts for 95% of Nigeria’s foreign exchange.
However, with national elections less than four weeks away, analysts said it was not a given that Mr Emefiele would devalue on Tuesday. “Another devaluation is on the cards, but the timing is still a bit unclear,” said Ridle Markus, a sub-Saharan currency strategist at Barclays Africa in Johannesburg.
According to its website, the central bank spent $28m a day last year trying and failing to defend the naira, which dropped 13.2% during the year, including the one-off official devaluation. Foreign reserves stood at $34.5bn last week, a drop of 20% over the year.
Compounding Nigeria’s problems, JPMorgan is reassessing Nigeria’s inclusion in its emerging market bond index, jeopardising one of the government’s few non-oil sources of funding.