10 May 2015 – Nigeria’s central bank 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 said.
The Financial Markets Dealers Association, a Lagos-based industry body, met this week to put a proposal together that may be presented to the regulator as early as next week, two of the people, who asked not to be identified because the talks are private, said.
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, they said.
The central bank of Africa’s biggest oil producer has implemented several measures since December to bolster the naira, which has weakened 19 percent 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 central bank hasn’t made any decision to change the trading rules currently in place, Ibrahim Mu’azu, a spokesman in Abuja, said by e-mail. David Adepoju, the Lagos-based president of the FMDA, said by phone that he was on holiday and referred requests for comment to Adebayo Adeyemo, the vice president, who didn’t immediately respond to an e-mail.
The naira weakened 0.8 percent to 200.55 per dollar at 4:25 p.m. in Lagos, the country’s commercial hub. The unit 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.
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 its foreign reserves. They stand at $29.7 billion, 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 Nigeria is to preserve its reserves, according to Razia Khan, head of Africa economic research at Standard Chartered Plc.
“It makes sense to assume that there will be some adjustment in the regime to allow for greater flexibility,” Khan told reporters in Lagos on May 5.
*Paul Wallace & Emele Onu – Bloomberg