Nigeria’s one-year currency forward posted its biggest fall in more than 10 years on Monday and stocks fell to an eight-year low after the central bank adjusted the naira’s official rate and the country recorded its first coronavirus death.
The currency in Nigeria, which relies on oil sales for 90% of foreign exchange earnings, has suffered since crude prices plunged following a disagreement between Russia and Saudi Arabia over output cuts and a slide in global demand.
The Nigerian central bank quoted the naira at 360 to the dollar on Monday, weaker than its previous peg of 306, while the rate on the interbank market moved to 380 from 360 previously.
Central Bank Governor Godwin Emefiele said in a tweet that the currency move was a price adjustment, not a devaluation.
The naira’s one-year forward price, which gives an indication of where the currency could trade in a year’s time, fell 11.3% against the dollar.
The non-deliverable forwards (NDF) market in London priced the naira at 515 to the dollar in a year’s time while naira futures contracts of the same tenor were quoted at 385.
Analysts welcomed the move to adjust the official rate of the currency and said the over-the-counter spot market exchange rate could actually be weaker than the new level of 380.
“It is clear that the central bank will be unable to maintain exchange rate stability if global oil prices remain near current lows in the months ahead,” said Cobus de Hart, senior economist at South Africa’s NKC African Economics.
Naira forwards nine months out also fell more than 11% while shorter maturities were down at least 5%.
The market differential between one-year naira forwards and futures widened to 130 naira on Monday, up from 30 naira in January, as investors raced to hedge risk.
The naira futures one-year contract offered by the central bank was revised upwards on Monday by 15 naira, traders said.
On the stock market, the main index retreated to 21,700 points on Monday, a level last seen in July 2012, after the most liquid banking shares on the exchange fell 9%.
So far, Nigeria has reported 36 cases of the coronavirus, of which 25 are in the commercial capital Lagos, a vast, sprawling city of some 20 million residents. Two patients have been discharged and one person has died. (Additional reporting by Karin Strohecker in London; Editing by Toby Chopra, Andrew Cawthorne and David Clarke)