By Garth Theunissen
June 9 (Bloomberg) -- Citigroup Inc. has pared its outlook for a slump in Nigeria’s naira, saying that a rebound in oil prices means the currency of Africa’s biggest crude exporter faces a 4.4 percent drop instead of 14 percent.
The naira is likely to depreciate to 155 per dollar, rather than the bank’s previous prediction of 173, by year-end as higher crude prices boost foreign earnings, David Cowan, Citigroup’s Africa economist, said in a phone interview from London.
Declining crude output due to conflict in the oil- producing Niger Delta means the naira is still unlikely to strengthen from the 148.25 per-dollar level it traded at late yesterday, he said.
“The naira is facing pressure to weaken in coming months, just not as much as it did before,” said Cowan. “Oil prices above $60 a barrel give Nigeria some relief and provide the central bank with more ammunition to defend the naira.”
Crude oil has rallied to $69.22 per barrel in New York trading today from as low as $32.40 in December, boosting Nigeria’s supply of foreign exchange and helping policy makers preserve their $44.7 billion in reserves. The Central Bank of Nigeria let the naira drop about 21 percent since November to avoid having to use reserves to defend the currency as oil prices plunged from a record $147.27 a barrel in July.
Current oil prices exceed Nigeria’s budgeted estimate of $45 a barrel, providing Africa’s most populous nation with an estimated “$20 windfall” for each barrel of oil exported, Standard Chartered Plc said June 5.
Niger Production
Rebel attacks have cut oil production in Nigeria, the fifth-biggest source of U.S. imports of the fuel, by more than 20 percent since 2006.
“Oil production is Nigeria’s big problem at the moment, especially because of the ongoing conflict in the Niger Delta,” Cowan said. The interruption of supply means “oil revenue coming in is still insufficient to meet demand in the foreign exchange market, which keeps pressure on the naira to weaken,” he said.
Nigeria is officially required to trim production from its current 1.88 million barrels a day to its OPEC quota of 1.67 million, according to Bloomberg data.
Former Central Bank Governor Chukwuma Soludo defended the naira by limiting the supply of foreign currencies, banning interbank trading of the naira and setting controls on exchange bureaus. He lifted the ban on May 22, a week before he was replaced by Lamido Sanusi.
Breaking Ranks
Commercial banks now trade foreign currencies for five hours per day with a “gentlemen’s agreement” to halt the exchange should the naira’s value deviate from the official central bank’s rate by more than 3 percent, according to Standard Chartered.
Oil companies are permitted to sell foreign-currency earnings to commercial banks, compared with previous rules requiring them to deal directly with the central bank at its targeted naira rate, according to Citigroup and Renaissance Capital, a Moscow-based brokerage with offices in Africa.
“Sooner or later one of the banks is going break ranks and bid for that foreign exchange from the oil companies above the central-bank rate,” said Cowan. “Everyone knows the exchange rate needs to weaken. The only question is which bank will be the first to stick their head above the parapet and when.”
Even with the rebound in oil prices, the government is unlikely to meet domestic demand for foreign currencies without drawing on its reserves.
“At current production levels oil would have to rise to about $80 a barrel to meet all the demand for foreign exchange in Nigeria,” said Cowan. “Unless they can boost their oil production they’re still going to be facing a shortage of foreign currency.”
To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net
Posts
No comments:
Post a Comment