Nigeria’s Soludo Backs Naira After Fall to Record Low

http://www.bloomberg.com/apps/news?pid=20601116&sid=aUBBUK05oA8Y&refer=africa

By Vincent Nwanma

Jan. 13 (Bloomberg) -- Nigeria’s central bank is committed to a stable, market-determined exchange rate, Governor Chukwuma Soludo said, as the currency fell to a record low for a second straight day.

The Central Bank of Nigeria expects the naira to strengthen “pretty soon” and speculators shouldn’t stockpile foreign exchange in anticipation of a further depreciation, Soludo told reporters today in the commercial capital, Lagos.

“Relative to where we are today, the naira will strengthen,” Soludo said. “The naira will stabilize and speculators will be off the market.”

The naira has slumped 27 percent since Nov. 26, when the central bank began limiting the supply of dollars to defend its foreign-currency reserves following a drop in the price of oil, which accounts for 90 percent of Nigeria’s export revenue. Oil has plunged 61 percent from a year ago. The naira dropped to a record low of 161.20 per dollar today, from 153.4 yesterday, according to Bola Adegbite, head of treasury research at Sterling Bank Plc in Lagos.

The west African country’s reserves currently stand at “slightly over” $53 billion and are sufficient to meet all current and future obligations, Soludo said.

Richard Segal, an analyst at London-based UBA Capital, said traders in Nigeria had yet to be convinced that the country’s economic and policy outlooks “are consistent with a stable exchange rate.’”

Budget Oil Price

President Umaru Yar’Adua last month presented a budget that is based on an estimated oil price of $45 a barrel and forecast the economy would expand 8.9 percent this year. Crude for February delivery fell as much as $1.49 to $36.10 on the New York Mercantile Exchange today.

“The foreign exchange markets have been suffering from a crisis of confidence since the end of November 2008 and are looking for more than words of assurance” from Soludo, Segal said.

Soludo earlier today met with chief executive officers from private Nigerian banks for talks that took almost two hours longer than scheduled.

Once the naira has stabilized, the central bank will establish a band within which the Nigerian currency will be allowed to fluctuate, Soludo said.

“We will announce that in the future,” he said, without being more specific.

The central bank will continue to monitor developments on the foreign-exchange market and issue circulars to banks, he said, without elaborating.

To contact the reporter on this story: Vincent Nwanma in Lagos via Johannesburg at pmrichardson@bloomberg.net.
Last Updated: January 13, 2009 07:58 EST