As the revenue acruable to government dwindles due to consistent drop in price of crude oil in the international market, the Naira eased to an eight-month closing low of 165.55 against the dollar, today. The fall was however, due to strong dollar demand from importers and companies reducing their exposure to the local currency, dealers said.
The naira fell 0.16 percent from Monday’s close of 164.28 to the dollar, a level last seen on Feb. 21, a day after the President suspended the former Central Bank Governor, sending financial markets into a tailspin.
Concerns about the falling price of oil, Nigeria’s main source of foreign currency earnings, contributed to the drop. The local subsidiary of Chevron sold $45 million to Nigerian banks, dealers said, but that was not enough to support the naira.
“At the current level, we expect the Central Bank to step in or else the Naira will fall further,” one dealer said.
The currency has lost 4.1 per cent against the dollar so far this year and is trading above the Central Bank’s target range of within 3 per cent of 155 naira to the dollar.
Demand for hard currency was coming from local importers and companies worried about the risk of a devaluation, dealers said.
“We admit that prospects of a near-term devaluation have risen, thanks largely to the recent decline in oil prices,” economists at Morgan Stanley said in a note, adding that the authorities would be reluctant to devalue ahead of an election due in February.
Brent crude held gains around $86 a barrel on Tuesday as news of robust Chinese oil demand buoyed the market, although prices were capped by oversupply and concerns about the health of the rest of the global economy.