CBN To Introduce Dual Exchange Rate, Weaken Naira

The Central Bank of Nigeria (CBN) may introduce a dual exchange rate

system and weaken the naira when it unveils a new policy this week,

according to a report by Bloomberg.

The apex bank will probably make an announcement in a circular to

banks, said a source who sought anonymity, who referred to private

talks held on June 9 in Abuja.

Analysts, including those at Renaissance Capital Ltd., have said they

expect the central bank to allow the naira to weaken around a trading

band in the interbank market, while allocating dollars at a fixed rate

to industries the government deems strategic. The central bank is

still working out details of the system, the source noted, and may

also reinstate a minimum holding period for foreign investors buying

naira bonds.

Emefiele has faced calls for more than a year to devalue the naira, as

other oil exporters from Russia to Kazakhstan and Angola have done,

amid a fall in crude prices since mid-2014 to around $50 a barrel.

Investment into Nigeria has shrivelled as foreigners are put off by

capital controls needed to defend the peg, while local businesses have

struggled to import raw materials and equipment.

Naira three-month forwards rose to 301 against the dollar by 3:45 p.m.

in London, poised for a record close and suggesting traders see the

currency falling to about that level from the spot price of 198.5.

Forward contracts maturing in a year traded at 340, also a record

high.

Isaac Okorafor, an Abuja-based spokesman for the central bank, did not

answer calls to his mobile or immediately reply to a text message

requesting comment.

Nigeria's economy removed a requirement for foreign investors to hold

local-currency debt for at least one year in mid-2011. That led to

Nigeria's inclusion the following year in JP Morgan Chase & Co.'s

local-currency emerging market bond indexes, tracked by more than $200

billion of funds, and also prompted naira yields to plummet. The

country was kicked out of the indexes last September because JP Morgan

said the currency restrictions made it hard for investors to trade

naira bonds.