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  • Naira rebounds from record lows on central bank action
 

Naira rebounds from record lows on central bank action

Naira rebounds from record lows on central bank action

by magna / Monday, 26 January 2015 / Published in Capital Market News

Naira recovered from record lows hit this week after the central bank increased forex trading limits and sold dollars to commercial lenders on Thursday, dealers said.

The unit rose 0.45 percent to close at 188.35 naira after ending at a record closing low of 189.20 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 central bank is having to intervene and sell dollars into the market, but that is burning up its foreign reserves.

The central 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 central bank 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 Merrill Lynch.

“Overall this sort 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 central bank 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.

Source : BusinessDay

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