The central bank of Nigeria (CBN) has relaxed the rules it implemented last month on buying and selling foreign exchange that have been fingered as responsible for crushing currency trading in the country’s economy.
The apex bank said banks now have 72 hours to use dollars bought in the interbank market before they must sell them back to the institution, an increase from 48 hours that was previously benchmarked. It also increased the maximum net open foreign-exchange trading positions that banks can hold at the end of each business day from nothing at all, to 0.1.
The crash in crude oil price and fall in Naira’s exchang rate had prompted the bank to tighten rules on foreign-currency trading. The bank had also raised interest rates to a record 13 percent in November to stem outflows and the Coordinating Minister of the Economy, Prof. Ngozi Okonjo-Iweala had proposed reducing the country’s 2015 budget by 8 percent.
Experts hold that the revision will increase the ability of banks to fund transactions as they can hold dollars for longer, although such increase is not expected to be very remarkable.
The naira weakened as much as 1.8 percent before paring the decline to trade 0.3 percent lower at 181.90 per dollar by 12:17 p.m. in Lagos, the commercial capital. While the currency is up 0.8 percent this year, it fell 10 percent in the past three months, the most among 24 African currencies tracked by Bloomberg. Brent crude has fallen almost 60 percent since June to $45.72 a barrel today.
The regulator reduced the daily foreign-exchange positions for banks from 1 percent of shareholders’ funds in December to stop speculation against the naira, Governor Godwin Emefiele said on Jan. 6. Nigeria’s reserves dropped 20 percent in the past 12 months as the central bank sold dollars to banks and traders to shore up the local currency.
However, some experts hold that the naira will still remain under pressure because the forces weakening the currency are more fundamental than the rules been tweaked
They maintain that the expectation of dollar shortages as oil price continues to fall is is the main issue affecting the country’s currency.
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