Foreign-currency dealers halted trading after the central bank changed rules on how many dollars can be held at the end of the day to limit speculating against the plunging naira.
“Banks have to sell all dollars they buy from the market, not to keep them until the following day,” Deputy Central Bank of Nigeria Governor Sarah Alade said by phone from Abuja. “It is to ensure dollar liquidity. We have noticed some dealers speculating on the currency because of the pressure from declining oil prices.”
The naira fell 13 per cent against the dollar this quarter, the worst among 24 African currencies tracked by Bloomberg after Malawi’s kwacha. Investors dropped Nigerian assets as the outlook for Africa’s biggest oil producer worsened with Brent crude prices almost halving since late June.
Alade said the regulator will meet currency traders about the bank’s circular on the rules issued on its website showing that the maximum foreign-exchange net-open position was cut to zero of shareholder funds by the end of each business day from one per cent. Interbank naira trading ground to a halt, according to Samir Gadio, head of African strategy at Standard Chartered Plc.
By 11 a.m. in Lagos, there were 12 trades in the naira, according to data compiled by Bloomberg. Yesterday, there were 101 in the same period. The currency weakened 0.2 per cent to 187.45 per dollar. The circular may unnerve investors holding naira assets if they think it will be followed by stricter measures, such as a cap on the interbank exchange rate, Gadio said by phone from London.
“The circular effectively shuts down any trading activity on the interbank market,” he said. “The market might wonder if this is the first step and there’s something else coming next.”
The central bank raised interest rates to a record 13 percent last month to protect the currency and its foreign reserves, down 19 per cent this year, while Finance Minister Ngozi Okonjo-Iweala proposed an 8 percent budget cut yesterday.
Lenders will still be able to buy dollars on the interbank market if they have orders from customers needing to import goods and services, Gadio said. The central bank will continue to support the naira with sales of dollars in the interbank market, Alade said.
“The banks can’t stop trading because of the circular. It is not supposed to close the market,” she said. “We have told them we’ll continue intervening in the market, so there is no need to panic.”