Central Bank of Nigeria (CBN) Governor Godwin Emefiele’s pledge to keep defending the naira was overwhelmed by a drop in oil prices as the currency weakened to another record low against the dollar.
“There’s no need for anybody to panic or worry,” Emefiele, 53, told Bloomberg in a phone interview from Abuja, the capital. “The central bank has always intervened. We know our reserves can support nine months of imports, which is far above the minimum expected. We believe we’re very safe.”
The naira fell for a fourth day, dropping as much as 2.1 percent, as Brent crude extended losses from the worst levels in five years, eroding revenue at Africa’s biggest oil producer. While the central bank stepped in on November 7 to send the naira to its biggest one-day gain in three years, intervening in the market has reduced foreign reserves to a four-month low of $37.7 billion. The central bank doesn’t target a level for the naira in the interbank market and will keep monitoring it, Emefiele said.
“If oil prices continue to drop it will affect our ability to generate dollars earnings,” Sewa Wusu, head of research at Lagos-based Sterling Capital Markets Ltd., said by phone. “That will put pressure on our local currency. That is why the naira continues to drop.”
The naira weakened to as low as N173.30 per dollar before paring losses to trade at N172.40 per dollar as of 4:50 p.m. in the commercial capital, Lagos. The currency is the biggest decliner among 24 African currencies monitored by Bloomberg today. Brent crude fell 1.7 percent to $79.02 a barrel.

‘Negative Speculation’
“The market is trying to form a new level around N172,” said Kunle Ezun, a Lagos-based currency strategist at Ecobank Transnational Inc. “I don’t believe the central bank will be comfortable seeing it at N172.”
Nigeria could be hit by more outflows from foreign investors as speculation against the currency mounts, ETM Analytics analysts Gareth Brickman and Catherine Bennett in Johannesburg said in an e-mailed note.
“While the governor is correct that the import cover ratio is quite robust, the worry is more on the financial side of the current account with respect to portfolio outflows, which could naturally be exacerbated by negative speculation against the currency,” they said. “The central bank’s policy errors last week are coming back to haunt it.”
The regulator on November 6 said it restricted banks’ use of the standing deposit facility, which allows companies to earn interest on excess cash, in an attempt to encourage lending to local businesses. Emefiele said the move didn’t weaken the naira because banks used their surplus liquidity to buy short-term central bank bonds.
“After that decision, most of them moved their money to the open market operations window,” he said. “We took all that money.”

Encourage Production
Africa’s largest economy also banned paying for imported goods such as electronics, generators and telecommunications equipment with foreign exchange bought at bi-weekly auctions.
“We did that because we wanted to encourage to people who are importing items we could produce locally to begin to look at producing them locally,” Emefiele said.
Restricting access to the standing deposit facility sowed confusion in the market and had the same effect as an interest-rate cut, when the central bank should be considering increases, Danat Abdrakhmanov, a money manager at Eaton Vance Corp., which oversees about $7.1 billion of emerging-market debt, said in an interview in London on November 10.
The central bank has been selling dollars to banks outside its twice-weekly auctions since the naira’s drop on the morning of November 7, Sarah Alade, a deputy governor, said yesterday in an e-mailed response to questions.
“We have been intervening in the market since Friday,” she said.

‘Modest Intervention’
Today, the central bank asked lenders to bid for $2 million each in a “modest intervention,” Samir Gadio, head of African strategy at Standard Chartered Plc in London, said in e-mailed comments.
Last week’s volatility boosted the chance of a 50 basis point increase in Nigeria’s benchmark interest rate, which has been at a record high of 12 percent since October 2011, London-based Capital Economics Ltd. said in a note on November 6. The central bank’s next Monetary Policy Committee meeting is on November 24 and 25.
“The market is actually gauging the ability of the Central Bank of Nigeria to stabilize the naira,” Abiola Rasaq, head of research at UBA Capital, said by phone from Lagos. “You may have the will to do something, but you may not have the ability to push it through.”