Nigeria's central bank decreed overnight that dollars bought from the interbank market can be held only for up to 48 hours, as it sought to get tough on speculators it blames for a sharp fall in the currency since last month. After the 48-hour interval has elapsed, the dollars must be sold back to the central bank at its own day rate, according to a circular seen by Reuters, which is likely to result in a loss.
The naira closed up 1.5 percent at 182.20 to the dollar in limited trade. "There is no major trading going on now at the interbank, as a result of the new rules. Most people are merely giving an indicative rate," one dealer said. The naira has been hit hard in the past few months by falling oil prices, and central bank Governor Godwin Emefiele told Reuters on Thursday that "we do not want speculators in this market any longer."
He was explaining a move made overnight to ban banks from holding any of their own funds in dollars. Within minutes, dealers sent the naira to a record low of 188.85 against the greenback, before it recovered marginally on the back of a central bank intervention. Despite assurances from Emefiele that "if there is genuine demand ... for dollars for legitimate purposes ... it will be met," dealers complained the bank's restrictive measures were making the market extremely illiquid.
"It impracticable to maintain zero open position limit. You need a matching deal before you give a quote of trade," said a dealer. "Trading is going to be dull today." Nigeria officially devalued its currency by 8 percent last month and widened its target trading band to 160-176 against the dollar, but few analysts believe that level can hold, given dwindling state oil revenues and declining reserves. As of December 8, foreign reserves stood at $35.95 billion, down nearly 20 percent from a year ago, largely from attempts to defend the naira in the face of a near-halving of global oil prices in five months.
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