Sunday, June 28, 2015

CBN LIMITS ACCESS TO FOREIGN CURRENCY.

The central bank has curbed access to the interbank currency market for the purchase of foreign currency bonds as well as a range of goods to tighten liquidity and conserve reserves.

The bank said importers could no longer get hard currency from the interbank market to buy items such as rice, cement, private jets, other construction materials, plastic and rubber products, soap, cosmetics, furniture and Indian incense.
Analysts said the latest measures risked diverting dollar demand to the black market, worsening perceptions about economic policy and delaying a decision to devalue the naira in the wake of weak oil prices.
“We see this policy move as confirmation that FX supply remains extremely tight. But more worryingly, it suggests that the central bank remains reluctant to devalue the naira,” said Yvonne Mhango, sub-Saharan Africa economist at Renaissance Capital.
The naira, which was trading at 198.50 on the interbank market, sold for 220 against the dollar at the black market in the commercial capital Lagos on Wednesday.
Currency and bond markets in Africa’s biggest economy have come under pressure since the price of oil, Nigeria’s main export, plunged. The central bank has spent $3.4 billion to prop up the naira since it fixed the exchange rate in February and tightened trading rules to curb speculation.
Central bank officials met chief executives and treasurers from commercial lenders last week to discuss the impact of its policies on the foreign exchange market, but stopped short of announcing any decisions on how to make the naira more liquid.
The bankers suggested in the meeting that the central bank should adopt a free-float regime in addition to raising interest rates to attract offshore investors back into bonds, two people who attended the meeting told Reuters.
The central bank, which declined comment, has said in the past that floating the currency was not option.
JP Morgan has warned it might remove Nigeria from its Government Bond Index (GBI-EM) if does not restore liquidity to currency markets in a way that allows foreign investors tracking its benchmark to trade with minimal hurdles.
“This sudden change in policy underlines the difficulties the central bank is facing in managing FX reserves, which points to possibly greater exchange rate policy changes to come,” Angus Downie, head of economic research at Ecobank said.
In a similar move in April, the central bank limited the amount commercial bank customers can spend using their debits cards abroad.
One trader at a major commercial bank told Reuters that pent-up demand for dollars in Nigeria was about $4 billion.
“The decision to in effect introduce additional capital controls does not bode well in relation to investor perception and may also adversely affect domestic business operations and costs,” Cobus de Hart of South Africa’s NKC Africa Economics said.

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