Central Bank of Nigeria (CBN) weekend announced new rules requiring currency dealers to put naira in their accounts at the bank two days before bidding in its forex auctions, in a move dealers said was unlikely to stop the local currency from weakening.
Nigeria has been selling dollars directly to banks to prop up the local currency, which has lost 2.9 per cent this year as the US Federal Reserve begins reducing its stimulus, which has led offshore investors to pull money out of local bonds.
The naira was trading at N163.38 to the US dollar, weaker than the five-month low of N163.35 it touched last Wednesday. “I don’t think this will stop the naira from weakening. People who have naira and have need for dollars will still buy it,” one dealer said, referring to importers in the West African country.
Nigeria depends on imports for almost 80 percent of goods sold in the country. Its currency has hovered around 162.50-163.60 naira in the past two weeks with a surge in dollar demand from offshore investors exiting local bonds and bureau de change agents buying hard currency on behalf of their customers.
The new measure, which comes into effect from Feb. 10, is expected to prevent forex speculation at its naira auctions. The regulator sells on average $800 million at its twice-weekly forex auctions on Monday and Wednesday. Dealers said the measure means customers bidding for dollars at the central bank would have to put the funds into their account their two days before submitting their bids. Until now they could bid and fund their accounts on the same day.
“I doubt if this move will have any impact on the interbank … apart from the opportunity cost for banks for leaving cash with the central bank for two days,” another dealer said, noting that the move was aimed at soaking up liquidity. On Wednesday, the central bank withdrew 750 billion naira ($5 billion) from the banking system to enforce a new higher cash reserve requirement for lenders to hold government deposits, which accounts for around 10 percent of total banking deposits. CBN data last week showed that Nigeria’s foreign reserves fell to $42.69 billion as of Feb. 4 compared with $46.09 billion a year earlier. Reserves fell 1.40 percent in the month to that date, the data showed.
