Indications are that the Nigeria’s apex bank, Central Bank of Nigeria, CBN may review the Naira trading rules to make it more flexible
Joy Onyemaehi With Agency Reports
The Central Bank of Nigeria (CBN) is looking for ways to loosen the naira trading rules Sources say that the apex bank has started talks with banks and currency dealers on how to loosen foreign exchange trading restrictions while still maintaining stability in the naira. it was learnt that financial market dealers had met last week to put together a proposal that might be presented to the regulator as early as this week.
The FMDA will recommend ways to increase trading and liquidity in foreign exchange market while at the same time avoiding speculative demand that might significantly weaken the naira according to sources familiar with the development.
Several measures have been implemented by CBN since December to boost the value of the naira. The naira has since the end of June 2014 weakened by 19 per cent against the dollar. One of the measures taken by the CBN to bolster the naira is the limiting of the rate at which the dollars is being bought in the interbank market. In February this year, the CBN introduced an 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 apex bank had yet to make any decision to change the trading rules currently in place. The naira weakened by 0.8 per cent against the dollar over the week end to N200.55. The local currency has closed at between N198 and N200 almost every day since the start of March. One-month naira dollar volatility dropped to the owest level in six years last month as central bank’s rules took effect.
The restrictions has left the naira overvalued and stopped many investors including Morgan Stanley and Aberdeen Assets Management Plc from buying local currency bonds until the currency weakens according to bloomberg. The CBN would probably not make any changes to the foreign exchange regime until after the new government of Muhammadu Buhari is sworn in on May 29 2015.
The regulator has also tried to prop up the currency by selling down the external reserves. The reserve currently stands 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 Bloomberg survey of economists.
The Central Bank would 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.