The naira depreciated to a new record low of N164.85 to the dollar in the inter-bank market as a result of central bank’s comments earlier this week that it would not support the currency at all costs.
After the market close, however, the bank took an alternative step to help protect the local currency, saying in a letter made publicly available that it would no longer allow oil companies to buy dollars at its auctions for buying oil product imports. Those companies should use the foreign exchange they earn from exporting crude oil, it said.
The ban applies to oil companies that have SWAP agreements with the state oil company, where they agree to market and export Nigeria’s crude oil, in return for delivering fuel, like petrol and diesel, which is imported from other countries. The decision is expected to reduce dollar demand at the central bank’s bi-weekly auctions and support the naira. “The move will reduce drastically demand at the official window and consequently help the naira appreciate. This could also be reflected in the interbank market as well,” one foreign exchange trader said.
“What the oil companies do is to buy dollars at a cheaper rate at the auction and sell their export proceeds to banks or in the parallel market. It’s good for the country in the long run because most of the oil firms are arbitraging on the naira currency,” he added.