The naira hit record lows against the dollar on Monday before central bank decisions that analysts say may include the second currency devaluation in two months for Africa’s top oil producer.
The naira, which has been hammered by the collapse in oil prices, fell 3.6 percent to a record low of 191.85 before recovering some ground after the central bank, two domestic banks and an energy firm sold dollars, according to dealers.
However, it still booked its weakest close on record at 187.10 to the dollar, suggesting commercial banks in Africa’s biggest economy think the central bank may opt for a repeat on Tuesday of its November devaluation.
Oil was at $79 a barrel on Nov. 25 when the bank lowered its target band 8 percent to 160-176 to the dollar, but since then it has dropped more than a third, exacerbating governor Godwin Emefiele’s concerns about dwindling reserves.
Crude accounts for 95 percent of Nigeria’s foreign exchange.
However, with national elections less than four weeks away, analysts said it was not a given that Emefiele will devalue again on Tuesday. The announcement is expected around 1330 GMT.
“Another devaluation is on the cards but the timing is still a bit unclear,” said Ridle Markus, a sub-Saharan Africa currency strategist at Barclays Africa in Johannesburg.
According to its website, the central bank spent $28 million a day last year trying and failing to defend the naira, which dropped 13.2 percent during 2014, including the one-off official devaluation.
Foreign reserves stood at $34.5 billion last week, a drop of 20 percent over the year.
Compounding Abuja’s problems, JP Morgan said last week it was re-assessing Nigeria’s inclusion in its key emerging market bond index, putting a question mark over one of the government’s few non-oil sources of funding.
“The reversal of inflows, coupled with a falling oil price in a low FX reserves environment, implies a sizeable naira depreciation is coming,” said Yvonne Mhango, an economist at Renaissance Capital in Johannesburg.
“This may be in the form of a second devaluation… or through the loosening of the central bank’s hold on the naira,” she added.
Further unsettling the outlook, a deepening insurgency in the northeast by Islamist group Boko Haram is adding to the tensions that have preceded every election since the end of military rule 15 years ago.
The central bank is expected to keep its main interest rate on hold at 13 percent, having raised it a hefty 100 basis points in November in an attempt to draw a line under the currency’s weakness.