N280 to $1: Nigeria’s currency reaches record low

The Nigerian naira weakened on Thursday to 280 to a dollar following a directive by the central bank that commercial banks should limit how much customers can spend abroad using their debits cards.

While the naira reached new lows on the parallel market , it remained below N200 on the official interbank market, closing at N196.97.

The apex bank has for months defended the naira employing varying measures to stabilize the falling currency, including shoring it up with forex reserves. But with reserves dwindling, the bank is not left with a better choice than curbing dollar demand. This, in turn, is hurting the naira.

“The central bank is not providing us with dollars to settle those trades and local banks are limited in their ability to source dollars, so we don’t want to end up with a settlement risk,” Reuters quoted a senior banker to have said.

In adherence to the central bank’s directive, commercial banks in Nigeria announced new limits. Individuals can now spend $100 to $150 abroad daily or $12,000 annually, down from the $50,000 set by the central bank in April. Before the April move, the limit was $150,000.

Analysts expect the naira’s struggle to continue as U.S. Federal Reserves interest rates increase is expected to exert more pressure as the economy witnesses capital flight and dollar cost of borrowing increases for emerging markets. From all indications, oil prices may not happen soon; this is also not good for the naira. The commodity accounts for more than 80 percent of government revenue and over 90 percent of foreign exchange earnings.