05 December 2014, Abuja – The naira weakened slightly below the central bank’s new target band yesterday as the federal government slashed the oil price assumed in its 2015 budget for the second time in a month.
The naira is under pressure as falling global oil prices have depressed Nigeria’s foreign reserves and the central bank is struggling to keep the currency in a new target band set last week when it devalued the currency by eight percent to protect its reserves.
The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala on Wednesday announced a further reduction in the oil price forecast on which its 2015 budget is based by 11 per cent to $65 a barrel, from $73, in light of lower world oil prices.
However, Reuters showed that the naira closed at N180.10 to the dollar, staying outside the new target range of N160-N176 to the dollar, and weakening slightly from the N179.90 it closed on Wednesday.
Dealers said trade was calmer on Thursday after the central bank intervened three times on Wednesday to lift the currency nearer to the target band. For the first time since the devaluation on Tuesday last week, the central bank did not intervene on Thursday to support the naira, but dealers said that did not necessarily mean that pressure on the currency was easing.
The cut in the government’s oil benchmark was the second in a month, from an original estimate of $78 a barrel. Brent crude continued to fall on world markets, slipping below $69 a barrel on Thursday.
Other oil exporting countries including Russia and Mexico have also said they expect oil prices to be lower next year than assumed in their budgets, which may be revised.
Nigeria depends on oil for about 75 to 80 per cent of government revenues and its finances have been hammered by a more than 30 per cent drop in oil prices since June.
Analysts, however, said Nigeria’s new oil price benchmark of $65 a barrel was workable. A Reuters poll forecasts Brent would average $82.50 a barrel in 2015.
“It ($65) is definitely more realistic,” the Chief Executive Officer of Lagos-based Financial Derivatives Company Limited, Bismarck Rewane, adding that at about $12 lower than the actual “gives them more headroom.” “But the next question is: what are you going to give up, from a long list of expenditure items, especially in the run up to the election? That’s where the real trick will be.”