CBN Eases Forex Trade Limits for Banks After Liquidity Squeeze

The Central Bank of Nigeria (CBN) eased curbs on foreign-exchange trading at banks, partly reversing a move last month that was aimed at shoring up a plunging currency and instead caused a liquidity crunch.
The maximum net open position that banks can hold at the end of each trading day was raised to 0.5 percent of shareholders’ funds, from 0.1 percent, the Abuja-based Central Bank of Nigeria said on its website. The limit had been 1 percent until last month, when the regulator removed it and ordered banks to clear their positions daily.
Nigeria, Africa’s biggest oil producer, has struggled to cope as crude prices plunged by more than half in the past six months. The naira has slumped 15 percent in that period, the most among 24 African currencies tracked by Bloomberg. Policy makers have responded by increasing interest rates to a record 13 percent and proposing spending cuts.
The central bank announced further steps Wednesday to defend the currency. It said foreign exchange bought at twice-weekly auctions and on the interbank market can only be used for “funding of letters of credit, bills for collection and other invisible transactions,” with bureaux de change no longer allowed access.
The central bank’s increase in the limit to 0.1 percent on Jan. 12 failed to boost liquidity. JPMorgan Chase & Co. placed Nigeria on Index Watch Negative last week for its local currency emerging market indexes, against which about $220 billion is benchmarked, citing the drop in volumes on currency and bond markets.
The naira weakened as much as 1.6 percent on Wednesday and was trading at 189.55 per dollar, a record low on a closing basis, at 7 p.m. in Lagos.

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