* Naira rebounds but still trading outside new band
* Stock market receives devaluation positively
* Coming days will test new currency level
* Inflation risk bad for Jonathan before election
(Adds analyst on outlook, links to graphics)
By Chijioke Ohuocha
LAGOS, Nov 26 Nigeria's currency touched a
record low against the dollar on Wednesday, a day after the
central bank devalued it by 8 percent, complicating efforts to
contain inflation before presidential elections early next year.
Falling world oil prices and a retreat from emerging markets
have put pressure on the currencies of several oil exporters,
including Angola, where the Kwanza also hit a record low
on Wednesday, as well as that of Africa's top producer Nigeria.
The country grows most of its own food, but imports a number
of staples like wheat and rice, making currency weakness
extremely sensitive for a poor population -- around 60 percent
of whom were living on less than a dollar a day in 2010
according to the statistics bureau.
The central bank has spent several billion dollars defending
the naira this year but it devalued the local unit and
raised interest rates sharply on Tuesday to try to stem its
On Wednesday the bank sold $667 million at its twice weekly
forex auction to meet a backlog of dollar demand, which combined
with dollar sales from some multinational oil companies enabled
the naira to close up 0.3 percent at 176.80.
But that was still just below the central bank's new target
band of 5 percent either side of 168 to the dollar.
Trading in the next few days will test whether financial
markets believe that target is realistic for a country
contending with a 30 percent fall in world oil prices since June
as well as an Islamist insurgency in the northeast.
Africa's top oil producer relies on crude revenues for
around 95 percent of its foreign exchange earnings and imports
80 percent of what it consumes.
A surge in living costs would be a headache for President
Goodluck Jonathan less than three months before what is likely
to be a closely fought presidential election.
Economists welcomed Central Bank Governor Godwin Emefiele's
action as accepting the reality of the naira's sliding value in
trading between commercial banks.
"Given the move higher in the largely-market determined
interbank rate ... the widening of the band around the official
mid-rate, and the setting of the mid-rate at 168 were the right
moves," said Razia Khan at Standard Chartered bank.
Analysts also said Tuesday's widening of the band from 3
percent either side of the target rate would help to build in
some flexibility. The stock market received the
devaluation positively, closing up 1.37 percent.
Some expected further pressure. "If you look at the
currencies of other oil exporters, they have fallen more than
the naira, so they may need to allow (for) some more
depreciation," said Jack Allen, an economist at Capital
EMERGING MARKET PULLBACK
Foreign oil companies, which typically buy naira towards the
end of the month to fund their Nigerian operations, helped the
currency to recoup some of its losses on Wednesday. Total of
France sold $20 million and Anglo-Dutch Shell
an undisclosed amount, boosting dollar liquidity on the
interbank market, dealers said.
Dealers also said there were expectations that the central
bank would intervene to keep the naira within the band.
"It's too early to tell if it's confidence returning or not.
Demand for dollars has not changed," said one dealer. "The
market had priced in the devaluation for some time now".
Falls in the naira have spooked bond investors who had been
wooed by Nigeria's high yields.
The yield on Nigeria's 2022 government bond rose
45 basis point to 14.25 percent, reacting to the increase in the
policy interest rate of 100 basis points to 13 percent on
Nigeria's central bank on Wednesday advised banks it would
drain a combined 568 billion naira ($43 billion) to meet a new
reserve requirement on private sector cash deposits.
The overnight lending rate, which had been in suspension
while it waited for that information, almost doubled to 20
Nigerian revenues have also been hit by crude oil theft from
pipelines and the disappearance of large sums from the state oil
firm that were highlighted by former central bank Governor
Lamido Sanusi earlier this year.
Analysts say failing to devalue would have been much worse.
"The bold steps taken by the central bank will help tremendously
to stem the drawdown in foreign exchange reserves," South
African-based NKC Research said in a note on Wednesday.
"Given the sharp depreciation of the interbank exchange rate
in recent months ... the cost of imports would have increased
even in the absence of an official devaluation."
According to its website, Nigeria's central bank has spent
an average of $27.9 million a day this year defending the naira,
but it has still dropped by 11 percent so far this year.
Emefiele told an investors' conference call on Tuesday that
Nigeria's foreign reserves stood at $36.5 billion,
down 18.3 percent from a year ago. "We will continue to defend
the currency as much as we can but not at all costs," he said.
(Additional reporting by Oludare Mayowa; Writing by Tim Cocks;
editing by David Stamp and Philippa Fletcher)