LAGOS, NOVEMBER 29, 2018 – The Nigerian naira weakened by 1 percent on the black market on Thursday to 370 per dollar, its weakest since August 2017.
Traders said some black market outlets were hoarding dollars, fearing a recent sharp fall in oil prices could lead to a shortage of the U.S. currency.
Global prices of oil, Nigeria’s chief export, have dropped more than 20 percent this month. Traders now fear that the Nigerian central bank may not have enough reserves to defend the currency against a possible further weakening of oil prices as foreign investors have been pulling money out of Nigerian assets.
“There’s no new investment coming in and oil prices have been dropping so investors are watching while some are exiting,” one trader said.
The central bank has been using up foreign exchange reserves to keep the naira stable, spending $2.2 billion in October to prop up the currency as foreign investors have also left the market in favour of rising interest rates in developed economies.
Central bank data released on Thursday showed Nigeria’s foreign reserves stood at $41.9 billion as of Nov. 27, down 12.3 percent from a peak of $47.8 billion reached in June.
Investors have also been pulling out funds from equities. On Thursday, Nigeria’s benchmark stock index fell 1.33 percent to 30,611 points.
The naira also weakened on the over-the-counter market where it is traded by banks. It was exchanged for between 364 and 364.50 to the dollar on Thursday, compared to 363 a week earlier. At foreign exchange bureaus it was quoted at 366 per dollar, while a unit fetched 306.30 on the official market.
The central bank has kept the official rate stable at 306.30 for over a year by frequently intervening in the market.
Dollar shortages could worsen, traders say, as investors close their books for the year unless the central bank increases its intervention in the foreign exchange market.
The central bank has been raising treasury yields to lure offshore funds, traders said, but lower oil prices and the prospect of potentially fractious campaigns ahead of a Nigerian presidential election next year are deterring foreign investors, traders said.
