Nigerian currency, naira, hit a record low against the dollar on Wednesday, a day after the central bank devalued it by 8 percent, complicating efforts to contain inflation before presidential elections early next year.
Falling world oil prices and a retreat from emerging markets have put pressure on the currencies of several oil exporters, including Angola, where the Kwanza also hit a record low on Wednesday, as well as that of Africa’s top producer Nigeria.
The country grows most of its own food, but imports a number of staples like wheat and rice, making currency weakness extremely sensitive for a poor population — around 60 percent of whom were living on less than a dollar a day in 2010 according to the statistics bureau.
The central bank has spent several billion dollars defending the naira this year but it devalued the local unit and raised interest rates sharply on Tuesday to try to stem its losses.
On Wednesday the bank sold $667 million at its twice weekly forex auction to meet a backlog of dollar demand, which combined with dollar sales from some multinational oil companies enabled the naira to close up 0.3 percent at 176.80.
But that was still just below the central bank’s new target band of 5 percent either side of 168 to the dollar.
Trading in the next few days will test whether financial markets believe that target is realistic for a country contending with a 30 percent fall in world oil prices since June as well as an Islamist insurgency in the northeast.
Africa’s top oil producer relies on crude revenues for around 95 percent of its foreign exchange earnings and imports 80 percent of what it consumes.
A surge in living costs would be a headache for President Goodluck Jonathan less than three months before what is likely to be a closely fought presidential election.
Economists welcomed Central Bank Governor Godwin Emefiele’s action as accepting the reality of the naira’s sliding value in trading between commercial banks.
“Given the move higher in the largely-market determined interbank rate … the widening of the band around the official mid-rate, and the setting of the mid-rate at 168 were the right moves,” said Razia Khan at Standard Chartered bank.
Analysts also said Tuesday’s widening of the band from 3 percent either side of the target rate would help to build in some flexibility. The stock market received the devaluation positively, closing up 1.37 percent.
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