Naira Rebounds From 7-Month Low on Nigerian Intervention

The naira strengthened, rebounding from the lowest level in seven months, on speculation the central bank is intervening by selling dollars.
The currency of Africa’s largest economy gained 0.2 percent, the most since October 13 on a closing basis, to N165.10 against the dollar in Lagos, the commercial capital. The naira earlier weakened as much as 0.4 percent to N166.07, the lowest intraday level since March 24.
“The central bank is in the market” and “selling dollars to banks outside of the auction,” Kunle Ezun, a fixed-income and currencies analyst at Lagos-based Ecobank Transnational Inc., said by phone. Calls to Central Bank of Nigeria Governor Godwin Emefiele and Deputy Governor Sarah Alade weren’t answered, while those to spokesman Ibrahim Mu’azu didn’t connect.
The central bank has supported the naira since mid-September by using reserves to sell dollars outside of twice-weekly auctions, according to Standard Chartered Plc. At the auctions, it offers the currency at N155 per dollar, plus or minus three percent. While the intervention helped prevent the naira from being among the worst performers in emerging markets this year, reserves are starting to erode, falling to $39.2 billion on October 20 from $43.6 billion at the end of 2013.
The naira declined 0.8 percent this month as Brent crude fell to the lowest level in more than four years. Further losses would force Africa’s largest oil producer to choose between raising interest rates, eroding foreign-exchange reserves or, eventually, devaluing the currency, according to Exotix Ltd., a London-based investment bank.

‘Political Pressure’
“It is not clear to traders how successful the central bank will be on managing the naira situation as oil price is influenced externally,” Sewa Wusu, an analyst at Lagos-based Sterling Capital Markets, said by phone. Brent for December settlement rose 0.4 percent to $86.45 a barrel on the London-based ICE Futures Europe exchange.
The Abuja-based central bank sells dollars outside of its Monday and Wednesday auctions when the interbank market is going “haywire,” Charles Mordi, director of research at the regulator, said on September 30.
“There will be political pressure to hold the naira until the elections” scheduled for February 14, Kayode Akindele, a money manager at Lagos-based 46 Parallels, said by phone. “After the election it will have more room to adjust.”
A weaker currency would boost the cost of importing everything from fuel to food, threatening support for the party of President Goodluck Jonathan, who’s already under pressure for failing to stem deadly attacks by Islamist militants. While Nigeria is the continent’s biggest producer of crude, which accounts for about 80 percent of government revenue, it imports around 70 percent of its fuel needs because of inadequate refining capacity.

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