Sanusi’s Policy Backlashes as Naira Slides, Reserves Fall

The naira fell for a third day after the Central Bank of Nigeria (CBN) lifted limits on sales of dollars to foreign-exchange bureaus by banks and its currency reserves dropped to a 15-month low.
The naira weakened as much as 0.9 percent to the lowest level since September 16, according to data compiled by Bloomberg. The central bank removed the weekly limit of $250,000 that may be sold to a bureau de change to “shore up liquidity in that segment of the foreign-exchange market,” it said in a statement on its website dated January 24. In September, the bank banned imports of foreign currency by lenders without approval.
“Foreign capital flows dried up last year and turned negative in early 2014 amid a generalized emerging-market foreign-exchange weakness, which is forcing the CBN to sell dollars directly to the banks,” Samir Gadio, an emerging-markets strategist in London at Standard Bank Group Ltd., told Bloomberg. “The removal of the cap on foreign-exchange sales by banks to bureaux de changes will also bring an extra layer of foreign-exchange demand.”
The currency of Africa’s biggest oil producer weakened 0.2 percent to 162.80 per dollar at 11:45 a.m. in the commercial capital, Lagos, extending this year’s drop to 1.5 percent. That compares with a 2.1 percent decline for the Tanzanian shilling, 3.7 percent for the Ghanaian cedi and 6.1 percent for the South African rand. The Ugandan shilling has strengthened 2.1 percent in the period, while the Malawian kwacha gained 1.8 percent.
Nigeria’s foreign-exchange reserves have fallen 12 percent since last year’s peak in May to $42.98 billion as of Jan. 31, the lowest level since Nov. 9, 2012.
The Central Bank of Nigeria is concerned that a widening gap between interbank and bureaux de change rates may precipitate speculation, Governor Lamido Sanusi said Jan. 21. It sells foreign currency at twice-weekly auctions to shore up the naira. The bank also sells dollars directly to lenders as irregular intervals.
Sanusi, who will step down in June after his term expires, has blamed falling reserves on crude revenue “leakages” and the state oil company’s retention of $10.8 billion that he says should have been transferred to government accounts.
The Abuja-based regulator’s Monetary Policy Committee last month raised the cash-reserve requirement on public sector funds to 75 percent from 50 percent and kept its benchmark interest rate at a record high 12 percent to keep the naira stable and curb inflation ahead of elections next year.
“The naira has remained resilient in the big scheme of things and largely outperformed most emerging-market currencies in the meantime,” said Gadio. “At this stage, allowing the currency to slide further would compromise Governor Sanusi’s macroeconomic legacy, which suggests this is highly unlikely to happen in the first half.”

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