Nigeria’s central bank will increase U.S. dollar supply to bureaux de change in an effort to reduce the sharp disparity between its official exchange rate and the black market, Governor Chukwuma Soludo said on Tuesday.
The central bank also announced it would increase the frequency of its foreign exchange auctions to a daily release from the current twice-weekly regime, in an effort to meet all legitimate demand for U.S. dollars.
The regulator imposed restrictions on forex trading between banks in February, meaning that the black market became the main alternative source of U.S. dollars to its auctions.
High demand for dollars pushed the naira <ngn=> above 185 to the dollar on the black market, compared to around 146 offered at the central bank’s auctions. It has since strengthened to around 170 on the black market, Soludo said.
“I think what caused the disparity is that we stopped funding the market … We are now going to enter the market again,” Soludo told a news conference in the capital Abuja.
He said he expected the local currency to strengthen by “several tens of naira” on the black market as a result of the central bank’s move, and said the bank was ready to supply whatever the market needed.
“If the market is going to absorb it … whether it be $100 million or $200 million we will supply it,” he said.
The central bank sold $673.94 million at its forex auction on Monday, failing to meet demand of $748.99 million, at a rate of 146.60 to the dollar. The black market rate was around 178 to the dollar on Tuesday, according to dealers.
The central bank introduced the tighter currency regulations in an effort to stem a sharp depreciation in the naira, which had fallen by more than 20 percent against the dollar in two months. Soludo has repeatedly said the measures are temporary.
Similar restrictions in the mid-1990s allowed banks, businesses and corrupt officials to make billions of naira from “round-tripping” — buying at the official rate and off-loading the dollars on the black market, making an instant profit.
The central bank announced tighter controls on bureaux de change in sub-Saharan Africa’s second biggest economy last month in an effort to prevent round-tripping and money laundering.
It also said it would require banks to send daily returns on domiciliary accounts and money transfers.
Soludo said in February that the central bank had previously sold around $200 million a week to the country’s 1,147 operating bureaux de change.
The decline in the naira has been triggered partly by falling world oil prices, which have clouded the economic outlook in Africa’s top oil producer and dented foreign earnings.