CBN, NNPC move to stem naira free fall

LATEST UPDATE: CBN, NNPC move to stem naira free fall

In a bid to further defend the battered naira from the sharp drop in oil prices, the Central Bank of Nigeria (CBN) and the Nigerian National Petroleum Corporation (NNPC) are working to sustain dollar flows, which will enable the naira trade within a tight range this week.

The local currency traded at N182.12 to the dollar on Friday, compared with N180.10 last week.

“Strong demand for the dollar from some offshore investors selling down their positions on the equity market has continued to exert pressure but regular intervention by the central bank provided some level of support for the naira,” one dealer said.

The apex bank sold $350 million at rates ranging between $168 and $175 last week. The NNPC sold about $200 million to some banks on Wednesday, helping to reduce the volatility in the market.

“The central bank will want to keep the exchange rate at a relatively stable level towards the close of the financial year,” another dealer said.

Meanwhile, oil prices are likely to come under further downward pressure, the International Energy Agency (IEA) said on Friday, as it cuts its outlook for demand growth in 2015 and predicted healthy non-OPEC supply gains would aggravate a global oil glut.

The agency, which coordinates energy policies of industrialised countries, cut its outlook for global oil demand growth for 2015 by 230,000 barrels per day (bpd) to 0.9 million bpd on expectations for lower fuel consumption in Russia and other oil-exporting countries.

The IEA said it was too early to expect low oil prices to start seriously curtailing North American supply boom.

“Barring a disorderly production response, it may well take some time for supply and demand to respond to the price rout,” the IEA said in its monthly report.

Oil prices have been in steep decline since June due to slow demand growth and a North American shale oil boom.

The selloff gained pace after OPEC decided last month to keep its output target unchanged to fight for market share with rival producers.

Global crude oil benchmark, Brent, was trading on Friday at a five-year low around $63 per barrel, down more than 40 per cent from June. The decline in price deepened after the release of the IEA report LCOc1.

Surging US tight oil supply will push total non-OPEC production to record growth of 1.9 million bpd this year although the pace of growth is expected to slow to 1.3 million in 2015, the IEA said.

Given lower estimates of global demand growth, the IEA said it had revised its predictions for demand for oil from OPEC for 2015 down by 300,000 bpd to 28.9 million bpd. That is more than 1 million bpd below the cartel’s current production.

Demand for OPEC oil will bottom seasonally in the first quarter of 2015, leading to a large build up in stocks.

Meanwhile, an investment banking and research company based in Lagos, Afrinvest West Africa, note that events intensifying the demand pressure for the greenback recently include the uncertainties around oil price, fear of further devaluation, speculative dollar demand, rising imports due to yuletide season and capital reversal amidst weak asset valuation.

“We fear that the current trend may likely continue even as the monetary authority seems to be confronted with prodigious pressure compelling a mishmash of policies, which forex market players seem to be juggling ways around. Hence, we expect the naira to remain weak even in the coming week.”



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