Nigeria’s central bank said on Thursday it plans to intervene in the country’s foreign exchange market occasionally to boost liquidity, while ending an eight-year ban on 43 items that had been restricted from accessing forex on the official market.
The ban, which covered items such as rice, cement and poultry, was imposed as part of the unorthodox policies under former central bank Governor Godwin Emefiele in an effort to prop up the naira currency.
The lifting of the ban will cheer analysts and investors who had been warning that the restriction showed the central bank was still maintaining some form of capital controls.
The Central Bank of Nigeria (CBN) also restated a pledge by new Governor Olayemi Cardoso last month to quickly clear the bank’s backlog of unsettled forex obligations to local lenders, estimated at about $7 billion.
Africa’s largest economy has struggled to get to grips with chronic dollar shortages on the official market, where trading volumes have steadily declined, causing the naira to slump to a record low against the dollar, with a 37% premium over the official exchange rate in street trading on Thursday.
“As part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian Foreign Exchange Market by interventions from time to time,” central bank spokesperson Isa Abdulmumin said.
“As market liquidity improves, these CBN interventions will gradually decrease,” he said in a statement.
The naira has been weakening on the parallel market due to speculation and as excess demand is funnelled into the informal market, widening the gap with the official market, where restrictions on trading the currency were lifted in June.
The latest measures announced by the central bank are “another market-friendly step” to unify the exchange rates and ease pressure on the naira in the parallel market, where importers of the 43 items had to access dollars, said Charlie Robertson, head of macro strategy at U.K. based FIM Partners.
“There is still more to do. To reduce forex shortages in the official market, the CBN might also need to signal that commercial banks can offer a weaker naira rate for dollars, to help increase the supply of dollars,” Robertson said.
The central bank said it would continue to promote orderliness and professional conduct by all market participants to ensure market forces determine exchange rates on a “willing buyer-willing seller” principle.
The bank also reiterated that the prevailing foreign exchange rates should be referenced from its website and from other recognised trading systems to promote “price discovery, transparency, and credibility in the forex rates.”
Abdulmumin said the central bank seeks to attain a “single forex market” and “consultation is ongoing with market participants to achieve this goal.”