Nigeria’s foreign reserves fell below $30 billion for the first time in more than four months, putting more pressure on the Central Bank of Nigeria's (CBN) bid to defend the naira and avoid a devaluation.
Gross reserves decreased to $29.881 billion as at December 1, the first time they have fallen below $30 billion since July 13, according to data from the central bank.
Bloomberg reported that the reserves have fallen by 20 percent since the end of June 2014, when Brent crude prices began a more than 60 per cent plunge, hammering the finances of Africa’s biggest oil producer and economy.
“With the oil price remaining low, the pressure isn’t dissipating,” said Ikechukwu Iheanacho, who manages N40 billion ($202 million) of stocks and bonds for Lagos-based Chapel Hill Denham Securities.
“It raises questions about how long the central bank can continue defending the naira.”
The naira has been all but fixed at N197-N199 per dollar since early March after Governor Godwin Emefiele restricted banks’ ability to buy foreign-exchange. In June, Emefiele stopped importers of about 40 items, including toothpicks and glass, from obtaining dollars.
Emerging market investors including Aberdeen Asset Management, AllianceBernstein and Investec Asset Management have sold Nigerian bonds and stocks this year to avoid what they see as an inevitable devaluation, which would cause losses on their holdings in foreign-currency terms. The naira rose 0.6 percent to N197.90 per dollar on the official market on Wednesday. Forwards prices suggest the naira will fall 19 percent to 243 in a year.
Meanwhile, the Debt Management Office (DMO) has disclosed plan to raise N50 billion ($251.26 million) in local currency denominated bonds maturing in February 2020 and March 2024 at its last debt auction of the year on December 9. The debt office said it would sell N30 billion of the 2020 debt and N20 billion of the benchmark 2024 paper. Reuters reported that the bonds are a reopening of previously issued paper. Results of the auction will be published the following day, the debt office said. The 2020 bonds closed with a yield of 11.73 percent on Wednesday and the 2024 at 11.85 percent, with dealers predicting yields would fall at the auction next week.