A Review of the Nigerian Energy Industry

Naira at 2-month low as CBN mulls rate cuts

CBN logo08 June 2014, Lagos – The naira fell to its lowest level since April as Nigeria’s newly appointed central bank governor said policy makers may begin cutting record-high interest rates for the first time in almost three years.

The currency depreciated 0.9 percent to 164.40 per dollar by 5:15 p.m. in Lagos, the commercial capital, the weakest on a closing basis since April 1. The naira has fallen for the past two days, extending this year’s decline to 2.5 percent.

While the Central Bank of Nigeria intends to keep the currency stable, policy makers will lower the African country’s main rate gradually, Governor Godwin Emefiele said yesterday in his first public speech since taking office this month. The regulator has kept the key lending rate unchanged at a record high of 12 percent since October 2011. The central bank has no plans to start cutting rates until after February 2015 elections, Reuters reported today, citing a phone interview with Emefiele.

“The naira could come under pressure as demand for the currency declines while its supply rises,” Chris Becker and Catherine Bennett, Johannesburg-based analysts at ETM Analytics, said in an e-mailed note today.

Emefiele said at a March Senate hearing that a devaluation of the naira would be “devastating” for the economy and “is not an option.” His stance may undermine the central bank’s ability to maintain the official midpoint of the naira peg at 155 per dollar at its twice-a-week foreign-currency auctions.

Nigeria’s reserves have dropped 16 percent this year to $36.7 billion as of June 4, according to central bank data.

“Our published forecasts already show token cuts in the monetary policy rate of 50 basis points both this year and next,” Gregory Kronsten and Bunmi Asaolu, analysts at FBN Capital Ltd., said in an e-mailed note. “We are cautious as to the impact of such cuts on lending rates for the real economy.”
*Chris Kay – ckay5@bloomberg.net

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