Don't Miss

CBN to relax naira trading rules

By on May 11, 2015

The Central Bank of Nigeria has started talks with banks and currency dealers on how to loosen foreign-exchange trading restrictions while still maintaining stability in the naira, people familiar with the discussions have said.

It was leant that the Financial Markets Dealers Association had met last week to put together a proposal that might be presented to the regulator as early as this week, Bloomberg reported.

The FMDA will recommend ways to increase trading and liquidity in the foreign-exchange market, while at the same time avoiding speculative demand that might significantly weaken the naira, according to two sources familiar with the development.

The CBN has implemented several measures since December to bolster the naira, which has weakened 19 per cent against the dollar since the end of June, by limiting the buying of dollars in the interbank market.

In February, it introduced a so-called order-based trading system in which banks can only buy foreign currency when they have matching orders from clients that need to import goods.

The CBN spokesman, Mr. Ibrahim Mu’azu, however, said the central bank had yet to make any decision to change the trading rules currently in place.

The President, FMDQ, Mr. David Adepoju, said by phone that he was on holiday and referred requests for comment to the Vice-President, Mr. Adebayo Adeyemo, who didn’t immediately respond to an e-mail.

The naira weakened 0.8 per cent to 200.55 per dollar at 4:25 p.m. in Lagos.

The local currency has closed at between 198 and 200 almost every day since the start of March. One-month naira-dollar volatility dropped to the lowest level in six years last month as the central bank’s rules took effect.

The restrictions have left the naira overvalued and stopped many foreign investors, including Morgan Stanley and Aberdeen Asset Management Plc, from buying local-currency bonds until the currency weakens, according to Bloomberg.

The central bank probably won’t make any changes to the foreign exchange regime until after the new government of Muhammadu Buhari, who defeated President Goodluck Jonathan in a March election, is sworn in on May 29, two of the people said.

The regulator has also tried to prop up the currency by selling down the external reserves. The reserves currently stand at $29.7bn, the lowest in a decade, according to HSBC Holdings Plc.

Nigeria’s current account, a measure of trade in goods and services, will fall into a deficit this year for the first time since 1998, according to a Bloomberg survey of economists.

The central bank will probably have to let market forces have a greater say over the exchange rate if the country is to preserve its reserves, according to the Head, Africa Macro-economic Research, Standard Chartered Plc, Razia Khan.