The central bank of Nigeria CBN has vowed to protect the country’s currency reserves after a court ruling in the United Kingdom granted a small natural gas firm the right to try to seize $9bn in assets from the Nigerian government.
Governor of Central bank Godwin Emefiele said that Nigeria has sufficient grounds to appeal the ruling, which concerns an aborted gas project in the southern Nigerian city of Calabar and was made on Friday in favour of Process and Industrial Developments Ltd
He said Such amount of funds would be one of the largest financial liabilities imposed on Nigeria in its history, representing 20 percent of the currency reserves of Africa’s largest economy and top oil producer.
“We know that the implication of that judgment has some impact on monetary policy,” Emefiele told reporters in Abuja. “That is why the central bank is going to step forward and … defend the reserves.”
He explained that Pressure has been building on the naira, Nigeria’s currency, as oil prices drop and foreign investors have been locking in their profits on local bonds as yields have fallen from as high as 18 percent a year ago. As yields have fallen – with bond prices moving up – foreign inflows have slowed. This in turn, has led to a shortage of dollars and depressed the naira.
Emefiele did not specify what other measures the central bank might take to defend the country’s currency or its foreign exchange reserves.
He said that “the UK judgment could add further fuel to the fire”.
“Worryingly, the central bank is employing unconventional tools more regularly to try and keep the naira stable and safeguard reserves,” suggesting that ongoing risks could result in “slower growth and higher inflation”.
On Monday, traders were seeking higher rates for one-year treasury bills as the naira weakened.
The naira has been quoted at 364 per dollar for foreign investors since last week, weakening from 363.50 as liquidity dries up on the foreign exchange market.
Nigeria operates a multiple exchange rate regime that it has used to manage pressure on the currency.