Naira Hits New Low Of N265/$, Analysts Say Weight Of Budget May Break Naira Defense

The naira fell 1.5 per cent to a new low of N265 to the dollar on the unofficial market on Wednesday after the Central Bank of Nigeria (CBN) rationed dollar supplies this week, traders said. Analysts said a record N6 trillion budget would make it impossible to hold the exchange rate.

The central bank cut the amount it sold to each of the 2,270 retail money exchange brokers that participated in Wednesday’s weekly sale to $10,000, down from the $30,000 each it sold last week, Aminu Gwadabe, the head of Nigeria’s bureaux de change a$$ociation told Reuters.

A record N6 trillion ($30 billion) budget for 2016, and the prospect of more borrowing to pay for it, would increase demand for imports and swell the amount of local currency in circulation, making it harder to hold the exchange rate, according to Credit Suisse Group AG and Investec Ltd.

While the naira is all but fixed at N198-N199 per dollar, prices of forwards suggest traders expect it would weaken 10 per cent to N221 in three months and 23 per cent to N258 in a year.

Unlike other oil exporters such as Russia and Colombia, which have let their currencies depreciate, Africa’s biggest economy has starved banks and their customers of foreign exchange in an attempt to prop up the naira. The black-market rate used by exchange bureaus fell to a record N260 per dollar last week amid soaring demand for the U.S. currency. It hit N165/$ yesterday. Foreign stock and bond investors have fled the country in anticipation of a devaluation.