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Naira Crashes in the Parallel Market, sells 360/$

Rowdy Scene As House holds Special Session On Petrol Price Increase

NAIRA DOLLAR POUND EURO

(NGN) (USD) (GBP) (EUR)

BUY / SELL BUY / SELL BUY / SELL

16/05/16 354/362 468/478 373/380

13/05/16 350/360 465/475 367/374

Naira forwards surged by the most on record as traders bet that the ability of Nigerian authorities to maintain their almost 15-month-long peg on the currency is waning.

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Three-month naira forwards rose by 10 percent, the most on a closing basis since the contracts began trading in March 2011, to a record 259 against the dollar at 1:57 p.m. in London. One-month forwards jumped 11 percent to 238, bringing their implied yield — the annualized amount that investors would get if they bought the contract and there was no change in the spot price at the end of the period — to 234 percent, also a record. Contracts maturing in a year climbed 3 percent to 306, suggesting a 54 percent drop in the naira from the interbank rate of 199.12 per dollar.

While Nigeria has held the naira at 197-199 since March 2015, even as falling oil prices cause government revenue and export earnings to plunge, Vice President Yemi Osinbajo said May 11 that a review of the currency regime “may feature” a devaluation. That suggested a shift from recent comments by President Muhammadu Buhari and came on the same day the government allowed fuel importers to buy foreign-exchange on the black market, rather than just from the central bank and oil companies. The unofficial rate weakened to about 360 to the dollar on Monday from 320 a week ago.

Those measures “signal greater FX flexibility,” JF Ruhashyankiko, a Goldman Sachs Group Inc. economist in London, said in an e-mailed note. “This move is likely to lead to a restoration of partially allotted multiple exchange rates, but it is less clear whether it will also lead to a gradual lifting of capital controls. The only way to resume capital inflows is to lift the capital controls.”

Three-month forwards have jumped 21 percent from 214 on May 11, while 12-month contracts have soared 13 percent.

Investors from AllianceBernstein LP to Morgan Stanley have sold naira stocks and bonds since Nigeria’s central bank started pegging the currency and introducing capital controls, which included restrictions on foreign-exchange trading and imports. Naira-denominated government bonds have lost 8.8 percent this year, making them the only ones not to have have gained among 31 emerging markets tracked by Bloomberg.

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