Nigeria’s central bank lifted a ban on the purchase of dollars on the official market to import 43 specified items after the measure diverted demand to the unauthorised market, fueling a rout in the local currency.
The importers of all the previously restricted items “are now allowed to purchase foreign exchange in the Nigerian foreign exchange market,” the Abuja-based Central Bank of Nigeria said in statement on its website on Thursday. “The CBN will boost liquidity in the Nigerian foreign exchange market by interventions from time to time.”
The central bank of Africa’s biggest economy in 2015 published a list of goods including rice, vegetables and poultry products for which importers couldn’t access dollars at the official exchange rate. The intention was to encourage local production, conserve dollars for essential imports and help stabilise the foreign exchange market.
Since there was no ban on the importation of the items, dealers moved the demand to the parallel market, where the naira trades at a weaker rate than the official one. That continued after the nation allowed naira to trade more freely in June as part of reforms to help attract more foreign investment and boost the economy.
The naira’s parallel-market rate weakened to 1 045 per dollar on Thursday from 1 030 the previous day, according to Abubakar Mohammed, chief executive officer of Forward Marketing Bureau de Change, which compiles data on the informal market in Lagos. That’s 27% weaker than the official rate of 759.20 a dollar on the FMDQ OTC trading platform.
Removal of the import restrictions “should reduce pressure on the naira in the parallel market” and help curb inflation, Charlie Robertson, head of macro strategy at FIM Partners, said by email. “To reduce foreign exchange shortages in the official market, the central bank might also need to signal that commercial banks can offer a weaker naira rate for dollar.” It could also consider higher interest rates to mop up naira liquidity, he said.
The central blank plans to clear a foreign-currency backlog on the official market and increase dollar supply “gradually” to boost liquidity and ensure price stability, the central bank said, adding that it’s committed to the attainment of a single foreign exchange market.
The nation will also ensure market forces determine exchange rates on a willing-buyer and willing-seller basis, it said.
Nigeria allowed its currency to weaken 40% against the dollar in June. The devaluation and currency reforms briefly merged the official and parallel-market rates before the spread started widening again in August, pressured by inadequate official dollar supply.
