Nigeria's Central Bank Governor Godwin Emefiele. (AFP/STR/Getty Images)

Nigeria’s central bank loosened rules implemented last month on buying and selling foreign exchange that were blamed for crushing currency trading in Africa’s largest economy.

The maximum net open foreign-exchange trading positions banks can hold at the end of each business day was increased to 0.1 percent from zero, the Central Bank of Nigeria, based in the capital, Abuja, said in a notice on its website dated yesterday. Banks have 72 hours to use dollars bought in the interbank market before they must sell them back to the institution, up from 48 hours previously, it said.

Nigeria, which produces the most oil of any African country, tightened rules on foreign-currency trading as the naira slumped and crude prices plunged. The central bank raised interest rates to a record 13 percent in November to stem outflows and Finance Minister Ngozi Okonjo-Iweala proposed cutting this year’s budget by 8 percent. Interbank trading dried up last month after the bank introduced the tighter rules.

The revision “will increase by a little the ability of banks to fund transactions as they can hold dollars for longer,” Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management Ltd., said by phone. “There’s not going to be a dramatic boost to trade.”

Stop Speculation

The naira weakened as much as 1.8 percent before paring the decline to trade 0.3 percent lower at 181.90 per dollar by 12:17 p.m. in Lagos, the commercial capital. While the currency is up 0.8 percent this year, it fell 10 percent in the past three months, the most among 24 African currencies tracked by Bloomberg. Brent crude has fallen almost 60 percent since June to $45.72 a barrel today.

The regulator reduced the daily foreign-exchange positions for banks from 1 percent of shareholders’ funds in December to stop speculation against the naira, Governor Godwin Emefiele said on Jan. 6. Nigeria’s reserves dropped 20 percent in the past 12 months as the central bank sold dollars to banks and traders to shore up the local currency.

“The naira will still remain under pressure because the forces weakening the currency are more fundamental,” Yinkere said. “The expectation of dollar shortages as oil price continues to fall is what is affecting the naira.”

Source: Bloomberg - By Paul Wallace and Emele Onu

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