The restrictions were imposed to curb demand for dollars in a bid to halt the depreciation of the naira against the dollar. But the restrictions led to lack of supply of dollars (liquidity) for trading in the interbank foreign exchange market.
In a meeting held with bank treasurers under the auspices of the Financial market Dealers Association (FMDA) Weekend, Governor Godwin Emefiele and other officials said while they were in favor of boosting liquidity in the foreign exchange market, there was concern that would lead to a surge in demand for dollars, according to a banker that attended the meeting who spoke on condition of anonymity. Local banks can’t access enough foreign-currency under the current rules”, the banker said.
The central bank asked treasurers and members of the Financial Markets Dealers Association to consider ways of stopping the naira from sliding if it did allow trading to increase, the banker said. Faced with a plunge in the price of oil, the source of 90 percent of Nigeria’s exports, Emefiele, 53, started imposing restrictions in the last three months of 2014 as he sought to protect the currency, which has weakened 18 percent against the dollar in the past year.
Bankers at the meeting told the regulator that the curbs were making foreign investors shun Nigerian bonds and stocks and preventing local companies from buying all the dollars they need to pay for imports.
‘No Decisions’
The central bank has been running down its foreign reserves, which have declined 27 percent to $29 billion since the end of September, as it defends the naira.
Ibrahim Mu’azu, a central bank spokesman, declined to comment and referred questions to the FMDA when contacted by phone on Monday.
“No decisions were taken” at the meeting, David Adepoju, the FMDA’s president and head of financial markets at Standard Chartered Plc’s Nigerian subsidiary, said by phone on Monday.
The naira fell to a record low of 206.32 per dollar on Feb. 12, the day before the central bank prevented dealers from buying greenbacks without matching orders from customers. The unit has since rallied and closed within a range of 197 to 200.7 every day since the end of February. It weakened less than 0.1 percent to 198.90 at 4:46 p.m. in Lagos on Tuesday.
Portfolio investors including Aberdeen Asset Management Plc. and Investec Asset Management have been put off buying assets in the country until there’s a devaluation. That’s a further drag on an economy whose growth the International Monetary Fund estimates will slow to 4.8 percent this year, about half the rate of the past 15 years.
Currency Restrictions
JPMorgan Chase & Co. may cut Nigeria from its emerging market bond indexes, tracked by more than $200 billion of funds, because of the currency restrictions, which it said may make it more difficult for investors to track the gauges. The New York-based lender will make a decision by the end of the year, it said on June 5.
“For foreign investors, it’s mostly about the naira,” Seun Olanipekun, a Lagos-based analyst at Investment One Financial Services Ltd., said by phone on June 19. “Right now, most are on the sidelines.”
Source- Vanguard
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