Nigeria’s foreign-exchange controls introduced last week, including a ban on currency trading between commercial banks, may last months, said Chukwuma Soludo, governor of the Central Bank of Nigeria.
The new rules are “temporary” and “could last for weeks, could last for months,” Soludo said at an economic-policy briefing in London today.
Trading in Nigeria’s interbank foreign-exchange market halted on Feb. 10 after the central bank announced tighter foreign-currency controls. Banks are allowed to purchase foreign exchange from the central bank only “for the use of customers” and may not use currency holdings for interbank transactions, the bank said in a statement on its Web site last week.
Policy makers prohibited banks from selling dollars and other currencies to customers at levels diverging by more than 1 percent from the rate at which the banks purchased the exchange from the central bank, the Abuja-based monetary authority said in the statement. The central bank also limited the banks’ net open foreign-currency position, or foreign-currency reserves minus short-term debt, to 1 percent of shareholder capital from 5 percent previously.
The naira, the currency of Africa’s most populous nation, lost about 20 percent of its value against the dollar after the central bank on Nov. 26 decided to let it depreciate to protect foreign reserves as oil revenue dropped. Crude, which accounts for 90 percent of Nigeria’s export earnings, has slumped 74 percent since reaching a record $147.27 a barrel in July.
‘Adequately Supplied’
“We have enough foreign reserves to meet all eligible transactions, all payment obligations, and the market will be adequately supplied,” Soludo told a group of journalists, investors and analysts at the conference held to explain the bank’s foreign-exchange policies.
Foreign-currency reserves fell 5.7 percent to $58.4 billion from $61.9 billion a month earlier, the central bank said on Nov. 7. As of Jan 22, reserves dropped to 50.9 billion as the central bank stepped in to buy naira after it reached a record low of 161.2 per dollar in interbank trading on Jan. 13.
Nigeria’s foreign reserves are the biggest in Africa.
The country’s reserves may fall further if a slump in oil prices prompts the central bank to defend the currency again, Citigroup Inc. said on Feb. 4. Nigeria’s middle class of about 20 million people has an estimated demand for foreign exchange of “between $20 billion and $100 billion” for the rest of 2009, according to David Cowan, an economist at Citigroup in London.
Speculators
The central bank’s exchange rate is 145.5 naira to the dollar. On the parallel market today, it was quoted at 155 naira to the dollar, according to independent street trader Ali Zage.
“Speculators who are buying foreign exchange now at current prices will probably lose quite a bit of money once the global crisis abates and the exchange rate strengthens,” Soludo said.
The naira, which traded at around 117 to the dollar before Nov. 26, may weaken to about 173 per dollar by year-end, Cowan estimates. If oil prices don’t average above $40 a barrel this year, the currency may depreciate to 185 per dollar by the end of 2009, bringing its devaluation since Nov. 26 to 37 percent, Standard Bank Group Ltd. wrote in a research note on Feb. 11.
The central bank’s exchange rate is 145.5 naira to the dollar. On the parallel market today, it was quoted at 155 naira to the dollar, according to independent street trader Ali Zage.
Nigeria requires an average oil price of $54.3 a barrel to finance the deficit on its current account, a measure of trade in goods and services, according to Standard Bank, Africa’s biggest lender. Oil traded at $37.32 a barrel in New York today.