By InvestAdvocate
Lagos (INVESTADVOCATE)-The naira on Thursday rebounded following the Central Bank of Nigeria’s (CBNs) latest intervention of stopping dollar sales to Bureaux De Changes (BDCs) and increasing the net foreign exchange trading position limits up from 0.1 percent to 0.5 percent.
According to a Reuters report, the unit rose 0.45 percent to close at N188.35 after ending at a record closing low of 189.20 for the two previous sessions.
The report says that liquidity conditions have gone bad as the naira has slumped to record lows because dollar inflows from foreign investment and other sources have dried up.
The Nigeria’s central bank selling dollars into the market is eating up the nation’s foreign reserves.
Reuters quoted dealers as saying that Italy’s Eni also sold $10 million to buy naira for its local operations.
The report quoted Oyinkasola Anubi, sub-Saharan Africa economist at Bank of America Merrill Lynch as saying that the policy reversals are not ideal for central bank credibility but are a step in the right direction in terms of improving spot naira liquidity.
“Overall these sort of policy changes are just delaying the inevitable currency devaluation which we believe will happen after the elections,” Anubi added.
The CBN had reduced dealers open positions from one (1) percent to zero in a bid to stabilise the currency after it was devalued by eight (8) percent against the dollar in November.
The report further affirmed that last week, the central bank allowed banks a 0.1 percent net position but warned them against carry trades or speculative activity.
With this banks can earn trading revenues when the naira is weak through carry trades, by borrowing the naira to buy dollars which they resell at a higher level to make a profit. “That makes it difficult for genuine forex users to buy dollars when liquidity is tight,” the report noted.
The report said the naira is at risk of speculative attacks as it is being hit hard by the slump in oil prices and by pressure on emerging market currencies as the dollar strengthens on expectations the United States will soon raise interest rates.
