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UPDATE 3-Naira slides again as Nigeria election pushed back
February 9, 2015 / 9:12 AM / 3 years ago

UPDATE 3-Naira slides again as Nigeria election pushed back

* Currency has fallen 18 percent since November

* Speculation that central bank will have to re-rate

* Central bank has sought to defend currency (Updates after market close)

By Chijioke Ohuocha

LAGOS, Feb 9 (Reuters) - The Nigerian naira slid to a record low on Monday after a six-week delay to the Feb. 14 presidential election that is stirring concerns about political stability and the central bank’s ability to manage a currency hammered by weak oil prices.

Despite central bank intervention, the currency of Africa’s biggest economy and top oil producer closed at 196.50 against the dollar, extending its slide since the start of November to 18 percent.

The currency has been officially pegged at 160-176 to the dollar after an 8 percent devaluation in November but has seldom traded inside that range, fuelling speculation that central bank governor Godwin Emefiele will have to re-rate again.

“We think a move in the peg is very possible but it’s political suicide to do it before elections -- but can they now wait until later, or is that economic suicide?” said Roy Daniels, head of dealing at Rand Merchant Bank in Johannesburg.

“Historically in Africa, political sway holds greater than economic sway, so I would say they could probably use more reserves and delay the shifting of the peg for a bit longer.”

The central bank’s next policy meetings are on March 23-24, just four days before the rescheduled vote, and then May 18-19, although Emefiele can call an emergency meeting at any time if he wants to.

Last year, the central bank burnt through 20 percent of its reserves as it spent an average of $20 million a day defending the naira.

However, that and the November devaluation failed to ease pressure on the currency in an economy which gets more than 90 percent of its dollars from oil sales.

Although most analysts are predicting another devaluation to around 210, naira Non-Deliverable Forwards -- currency derivatives traded offshore -- pointed to it being priced at around 255-261 in a year’s time.

Investors also sold Nigerian equities on Monday, with the stock market dropping 2.08 percent. The overnight interbank rate jumped to 60 percent as the central bank sucked up liquidity, putting further strain on an already struggling economy.

DEMOCRACY DELAYED

The election is pitting President Goodluck Jonathan against former military ruler Muhammadu Buhari, who is channelling public frustration at Jonathan’s handling of the economy and a five-year insurgency by Islamist Boko Haram militants.

Buhari has urged his supporters not to take to the streets, but the delay could yet stoke unrest in opposition strongholds such as the commercial capital, Lagos, and Nigeria’s second city, Kano.

Around 800 people were killed in three days of post-election violence in 2011, when Buhari lost to Jonathan in what was also a delayed vote.

This postponement -- ostensibly for reasons of security in the violence-plagued northeast -- means Abuja will remain in limbo for another six weeks at least, delaying the passage of key laws such as an overhaul of the petroleum sector.

“The election delay will also hold implications for fiscal policy, with critical decisions aimed at guiding the economy through this turbulent time possibly being delayed,” said Cobus De Hart of NKC Independent Economists in South Africa.

Longer-term, the invocation of the concerns of security agencies in the political fray has damaged the reputation of Africa’s most populous nation as a chaotic but gradually evolving democracy.

The United States and Britain criticised the delay. Any further irregularities -- whether or not they trigger unrest -- are likely to compound fears of supposedly independent state institutions, including the army, taking political sides. (Reporting by Chijioke Ohuocha, Ed Cropley and Sujata Rao; Writing by Ed Cropley; Editing by Giles Elgood)

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