Yemisi Izuora/Agency Report
The Central Bank of Nigeria, CBN, has assured to protect the country’s currency reserves after a British court ruling granted a small natural gas firm the right to try to seize $9 billion in assets from Nigeria’s government.
Such a sum would be one of the largest financial liabilities imposed on Nigeria in its history, representing 20 per cent of the currency reserves of Africa’s largest economy and top oil producer.
The CBN governor Godwin Emefiele said Nigeria had sufficient grounds to appeal the ruling, over an aborted gas project in the southern Nigerian city of Calabar, made on Friday in favour of Process and Industrial Developments Ltd.
“We know that the implication of that judgment has some impact on monetary policy, and that is why the central bank is going to step forward and defend the reserves,” Emefiele told journalists in Abuja Monday.
Pressure has been building on the naira as oil prices drop and foreign investors lock in their profits on local bonds as yields have fallen from as high as 18% a year ago. As yields have fallen, foreign inflows have slowed, in turn leading to a shortage of dollars and hurting the naira.
In a further sign of pressure on the currency, President Muhammadu Buhari last week told the CBN, to stop providing funding for food imports.
However Emefiele did not say what other measures the Bank might take to defend the country’s currency or its foreign exchange reserves.
“FX pressures have intensified as global risk-off sentiment incentivises some portfolio reversals, and the UK judgment could add further fuel to the fire,” said Cobus de Hart, senior economist at South Africa’s NKC African Economics.
On Monday, traders were seeking higher rates for one-year treasury bills as the naira weakened, and bid-offer spreads doubled in volatile trades, reports Reuters.
The naira has been quoted at 364 per dollar for foreign investors since last week from 363.50, as liquidity dried up on the forex market.
Nigeria operates a multiple exchange rate regime that it has used to manage pressure on the currency.
Last week, Emefiele met fund managers in London in a roadshow arranged by South Africa’s Standard Bank following its second debt auction that week, where the Bank told dealers to raise rates to lure foreign investors.
Emefiele sought to reassure investors who were focused on the oil price and the bank’s policy on debt sales, saying that the currency would continue to be stable.
“Worryingly, the central bank is employing unconventional tools more regularly to try and keep the naira stable and safeguard reserves, and risk exists which could ultimately come at the cost of slower growth and higher inflation,” De Hart said.