The naira appears to have hit its worst monthly depreciation in almost six years (December 2008) against the dollar in a month that saw our currency battered by oil price slump, stock market sell offs, eventual devaluation and government decision to introduce budget cuts.
The naira fell 2% to 178.45 per dollar today making it a record low on a closing basis. Bloomberg Data confirms the naira weakened 7.2 percent this month making it the largest drop this month among the 24 African currencies tracked. Black market sources also confirm the Naira was trading at N183 as at Friday if you wanted to buy from them.
The Naira has performed this badly because of the sharp drop in the price of oil leading to a fall in the stock market as investors pulled their funds out. The CBN has spent billions of dollars trying to defend the naira spending over $3billion in November alone. This gave the CBN little choice but to devalue the naira.
Following the devaluation of the Naira the CBN chose N168 as its mid-point with+/-5% band. This means the CBN is happy for the naira to trade at N176.4 in the event of strong demand. An interbank rate of N178.45 and a black market rate of N183 is a spread of about N4.55 or 2.5% and suggest at least that we are seeing some tightening.
OPEC also agreed to keep oil supplies flowing resisting a cut that would have helped increased oil prices that has fallen sharply this month. This also means crude exports which makes up about 70% of Government revenue will be affected. This will affect external reserves and might continue to pile pressure on the naira.
The worst is not behind us yet !