06 June 2015, Lagos – The Central Bank of Nigeria, CBN, on Thursday made a tiny adjustment to its exchange rate peg to the dollar on its website, a move an analyst said may indicate that the regulator was beginning to think about how to loosen its currency regime.
The central bank adjusted the rate at which it sold hard currency this week to N196.95 to the dollar from N197, and Reuters quoted dealers to have explained that the change was too small to be called a revaluation, particularly in the face of dwindling foreign reserves.
The naira traded on thin volumes at N198.95 to the dollar on the interbank market on Thursday, before two large sales totalling $36.4 million were done at N196.95, around the market close, dealer said, attributing the sales to the central bank. The naira traded between N215 to N218 in the parallel market.
One economist told Reuters that the move may suggest the Bank was testing out the market to see whether it was ready for a looser currency regime.
“Small changes in the rate could possibly allow the central bank to gauge the changes in demand and supply dynamics which would inform decisions on when and how best to start lifting forex restrictions,” South Africa’s NKC Independent Economists,Cobus de Hart said.
The CBN however said the move simply reflected the state of dollar supply. “We are not fixing rates. The present rate is a reflection of the level of dollar supply in the market,” central bank spokesman, Ibrahim Muazu told Reuters. One other economist said the move would hurt the country’s precarious forex reserves position, however.
“By lowering the central bank rate offered to banks albeit very moderately, the central bank is adding to pressures on FX reserves … equivalent to around 4.9 months of imports,” head of research at Ecobank, Angus Downie said.
Nigeria’s foreign reserves had fallen to $29.4 billion as of June 2, down 20.1 per cent from a year ago as the central bank burnt cash to defend the local currency. The naira has lost 8.5 per cent of its value since the start of the year after sharp falls in the price of oil, Nigeria’s main export. That forced the central bank into a de facto devaluation and fixing of the exchange rate in February in order to protect its dwindling foreign reserves.