While everyone was paying attention to Russia, Nigeria started having its own currency crisis.
The naira has spiked to almost 187 NGN per dollar over the last month, up from a price in the 160-165 range earlier this fall.
This isn’t a huge surprise. Falling oil prices hit Nigeria hard, and that blow amplifies the political instability within the country as February’s national elections approach. Emad Mostaque at Ecstrat predicted the naira might go all the way to 200 back in November.
This is the relevant bit from Mostaque’s note on the Nigerian economy published on November 11:
Nigerian FX reserves have already fallen from $US48bn at the start of the year to $US38bn now, with the lower oil price meaning that significant intervention may well cause a rate of depletion that exceeds the $US1bn weekly we saw during the first quarter.
The Central Bank is also pursuing other actions at odds to its attempt to stabilise the currency, such as reducing the amount banks could park on the reserve account to mobilize around 400bn NGN of lending and restricting regular foreign auctions, increasing interbank demand. It is also stuck on rates with significant political resistance to increasing them beyond 12%.
With oil production well off nameplate capacity and an official budget of $US80 challenged, it is possible that consensus will move to Nigeria running a current account deficit next year, particularly in light of the usual increase in spending that accompanies potential tight elections and the challenge of a growing Northern insurgency.
We would expect a speculative attack on the currency in the next few months similar to that Turkey experienced earlier this year and Russia has just experienced now. While the central bank may well be able to stabilise the market short-term, any measures they enact should lead to the Naira devaluing past our target from earlier this year of 190 toward 200.
This is a story to continue to watch in the coming weeks.
For context, here’s the 10-year view of the USD-NGN exchange rate.