Stock, Bonds Suffer Sell-off, CBN Raises Support for Naira

Nigerian stocks and bond prices fell on Thursday, as foreign investors sold off frontier assets, forcing the central bank to intervene to prop up the naira after it fell to an all-time intraday low, its deputy governor said.
The stock index closed down 2.24 percent at a 7-week low of 39,378 points while the country’s shortest maturity bond yield spiked 10 basis points.
The naira, which has lost more than 3 percent of its value this year, fell to a record low of 167 against the dollar, closing at 163.05 to the dollar after the intervention.
“We have the capacity to defend the currency and we will defend it,” central bank deputy governor Sarah Alade told Reuters by telephone. “Most of the demand really is speculation … We moved to assure the market.”
Dealers said rumours of a central bank emergency meeting and by Nigerian President Goodluck Jonathan’s sacking of four government ministers on Wednesday had sparked naira selling.
The bank has spent billions of dollars over the past year trying to buoy the currency, raising speculation about when it might eventually have to devalue.
Alade said, with $42 billion of reserves, the bank was well able to meet its commitment to keeping the local unit within its managed band of 3 percent either side of 155 to the dollar.
As with other emerging and frontier markets, Nigeria’s have been hammered by a widespread pullback after the U.S. Federal Reserve began to reduce its stimulus, which had kept global markets flush with cash.
Dealers said investors were not overly concerned about the sackings, but political instability is often a worry, especially as wasteful government spending tends to spike before elections. The next elections are due in 2015.
“I think the picture was arguably not good before those ministers were sacked … but we know about the selling taking place primarily driven by foreign investors which already adds to a picture that is not looking very good,” Alan Cameron, London-based economist for Nigerian stockbroker CSL, said.
The yield on the 2015 bond, which is also listed in the JPMorgan emerging government bond index, rose to 13.67 percent, against 13.61 percent the previous day.
A second dealer said he expected the central bank governor, whose term expires in three months, to continue to use foreign exchange reserves to defend the currency till he departs.
Source: Reuters

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