The naira hit an all-time low of 196.30 against the dollar at the interbank segment of the foreign exchange market on Monday following the announcement of the postponement of the general elections by six weeks.
The Independent National Electoral Commission had on Saturday announced the postponement of the elections from February 14 and 28 to March 28 and April 11.
The postponement of the elections has cast a shadow on the naira’s outlook, pushing the forex markets into a panic mood, according to analysts.
Foreign exchange dealers and financial analysts told our correspondent on Monday that the poll shift had heightened pressure on the naira as investors became worried over whether the elections would hold or not.
On Friday, the naira closed at 193.90 against the dollar despite an intervention by the Central Bank of Nigeria. The naira had closed at 192.70 to the greenback on Thursday.
“The postponement of the elections was a major blow to the naira. The naira has fallen by this margin because investors are worried over whether the elections would hold or not. In a way, it has heightened the security risk on the country,” said a forex dealer who chose to speak under the condition of anonymity.
According to analysts, if the trend continues, the naira may cross 200 against the dollar at the interbank market.
This, they said, would push the value at the parallel market to about 230, up from the current 207.
Some industry analysts and investment advisory firms, including Afrinvest West Africa Limited and Financial Derivatives Limited, had predicted that the naira might hit 200 at the interbank market soon.
The Head, Investment and Research, Afrinvest West Africa Limited, a business advisory and research firm, Mr. Ayodeji Ebo, said, “The delay in the polls will increase election spending and outflows of funds from foreign portfolio investors. This will continue to put pressure on the naira. A lot of people are also now betting on the naira because of the uncertainty in the country. The issue of falling oil price is also there.
“If the naira should cross 200 against the dollar at the interbank market, the CBN may convene an emergency Monetary Policy Committee meeting to address the issue. If the pressure continues, the naira may be devalued before the elections.”
According to Ebo, the CBN needs to also build a policy around the informal activities that make use of the naira by bringing some of the imported items back to its Retail Dutch Auction System window.
This, he said, would help preserve the local currency.
Currency strategist at Ecobank Nigeria, Mr. Kunle Ezun, said recent decisions had led to some reactions in the foreign exchange market.
He said there would be a need to reassure investors that everything was under control.
The naira has been officially pegged at 160-176 to the dollar after an eight per cent devaluation in November.
The local currency has, however, traded outside the 160-176 band. This has fuelled speculations that the CBN might devalue it again.
“We think a move in the peg is very possible but it is political suicide to do it before the elections, but can they now wait until later, or is that economic suicide?” the Head of Dealing at Rand Merchant Bank in Johannesburg, Roy Daniels, told Reuters.
“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,” he said.
The CBN’s next policy meetings are on March 23 and 24, just four days before the rescheduled presidential election, and then May 18 and 19, although the governor, Godwin Emefiele, can call an emergency meeting at any time if he wants to.
Last year, the central bank burnt through 20 per cent of the reserves as it spent an average of $2m a day defending the naira.
However, that and the November devaluation failed to ease the pressure on the currency in an economy that gets more than 90 per cent of its dollars from oil sales.
Although most analysts are predicting another devaluation to around 210, the naira non-deliverable forwards – currency derivatives traded offshore – pointed to it being priced at around 255-261 in a year’s time.