Naira rebounds from record lows on CBN action

Stories from Ngozi Onyeakusi, Lagos

The Naira recovered from record lows hit last week after the Central Bank of Nigeria (CBN) increased forex trading limits and sold dollars to commercial lenders on Thursday, dealers said.

The unit rose 0.45 percent to close at N188.35 after ending at a record closing low of N189.20 for the two previous sessions.

Liquidity conditions have deteriorated as the naira has slumped to record lows because dollar inflows from foreign investment and other sources have dried up.

The CBN is having to intervene and sell dollars into the market, but that is burning up its foreign reserves. The apex bank increased foreign currency trading position for commercial banks to 0.5 percent of their capital base from 0.1 percent, to shore up interbank dollar liquidity.

Italy’s Eni also sold $10 million to buy Naira for its local operations, dealers said.

“These policy reversals are not ideal for the central bank’s credibility, but are a step in the right direction in terms of improving spot naira liquidity,” said Oyinkasola Anubi, sub-Saharan Africa economist at Bank of America’s Merrill Lynch.

“Overall, these sorts of policy changes are just delaying the inevitable currency devaluation which we believe will happen after the elections.”

According to a circular seen by Reuters, the central bank said funds sold to commercial lenders would be used for funding letters of credit, other invisible trades but should not be resold to bureau de change dealers.

The CBN had reduced dealers open positions from 1 percent to zero, in a bid to stabilise the currency after it was devalued by 8 percent against the dollar in November.

Last week, it allowed banks a 0.1 percent net position but warned them against carry trades or speculative activity.