Nigeria’s naira slumped to a record low on Monday as falling oil prices, political turbulence and escalating violence by Boko Haram insurgents continued to weigh on investor sentiment in the tense run up to February elections. The naira dropped 3 per cent to 190.45 against the US dollar before recovering fractionally, ahead of a meeting of the Nigerian central bank’s Monetary Policy Committee on interest and exchange rates which starts on Tuesday. Renewed pressure on the currency coincided with a string of cautionary forecasts about prospects this year for Africa’s largest economy, which has shrunk $40bn in dollar terms as a result of the recent slide in the currency — itself precipitated by the 60 per cent drop in the price of oil since June. Africa’s leading oil producer depends on crude exports for about 70 per cent of state revenues and more than 90 per cent of hard currency earnings.
Matt Robinson, manager of the Africa sovereign ratings team at Moody’s, the credit rating agency, told the Bloomberg News agency on Friday that relentless attacks by Boko Haram insurgents, fighting to carve out an Islamic state from the impoverished northeast of the country, were adding pressure on the nation’s credit rating alongside plunging oil prices.
JPMorgan Chase, which runs the most commonly used emerging debt indices, also said it was assessing Nigeria’s place in its emerging currency bond index because of a lack of liquidity in the country’s forex and bond markets as a result of measures introduced last month to prevent speculative trading.
Philippe De Pontet, who leads the Africa practice at Eurasia Group, a consultancy, said that removal from the index would have a “strongly negative impact on portfolio investor sentiment”.
But he and other analysts predicted that measures to partially restore banks’ ability to retain dollar positions “may help to keep Nigeria in the index.”