LAGOS: Nigeria's naira touched a record low against the dollar on Wednesday, a day after the central bank devalued the currency, complicating efforts to contain inflation before presidential elections early next year.
The central bank devalued the naira by 8 percent and raised interest rates sharply on Tuesday, trying to stem losses to its foreign reserves spent defending the currency as the price of oil - Nigeria's dominant export - slides on global markets.
The naira fell to a record low of 178.85 to the dollar shortly after the market opened, but rebounded by around 1 percent to 176.35 after two oil companies sold dollars.
Nevertheless, that was still just below the new target band of 5 percent either side of 168 to the dollar, announced by Governor Godwin Emefiele on Tuesday.
Trading in the next few days will test whether financial markets believe the new target is realistic for a country contending with a 30 percent fall in world oil prices since June as well as an militants insurgency in the northeast.
Economists welcomed Emefiele's action as accepting the reality of the naira's sliding value - in common with the currencies of other oil exporters such as Russia - 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, rising by 1.5 percent.
However, continued downward pressure on the naira threatens to stoke inflation by pushing up the cost of imports, on which Africa's biggest economy relies for around 80 percent of its consumption.
Over the past two years Nigeria has enjoyed historically low inflation in single digits, a target the central bank is keen to keep meeting.
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.
Though Nigeria grows much of its own food, a number of staples, particularly wheat and rice, are largely imported.
The statistics office in 2012 estimated that about 60 percent of Nigerians were living on less than a dollar a day in 2010.
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