The Central Bank of Nigeria (CBN) has expressed fears that removal of restrictions imposed on the interbank foreign exchange market will lead to sharp depreciation of the naira.
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 with bank treasurers under the auspices of the Financial Market Dealers Association (FMDA) on Friday, Governor Godwin Emefiele and other officials said while they favour boosting liquidity in the foreign exchange market, there was concern that it would lead to a surge in demand for dollars, according to a banker who 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 FMDA to consider ways of stopping the naira from sliding if it allowed 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 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, according to the source.
The central bank has been running down the foreign reserves, which have declined 27 percent to $29 billion since the end of September, as it defends the naira.
Mr Ibrahim Mu’azu, Central Bank spokesman, declined to comment and referred questions to the FMDA when contacted.