The central bank of Nigeria has felt the effects of its decison to relax the weekly limit on trading in dollars.
The naira weakened for a second day to its lowest since 2011 as investor inflows were said to have slowed and foreign exchange demand remained strong after Nigeria’s central bank lifted limits on sales of dollars.
The currency of Africa's top oil producer declined as much as 1% to 165.63 per dollar, the lowest intraday level since October 2011, before trading 0.3% lower at 164.55 per dollar at lunch time on Wednesday in Lagos.
The Central Bank of Nigeria removed the weekly limit of $250 000 that may be sold to a bureau de change to "shore up liquidity in that segment of the foreign exchange market," it said in a statement on January 24.
Investor inflows "have clearly slowed under the cloud of tapering", Gregory Kronsten and Bunmi Asaolu, strategists at FBN Capital, said. "Demand at the central bank's foreign exchange auctions has not eased since the end of the holiday season."
The Central Bank of Nigeria is concerned that a widening gap between interbank and bureaux de change rates may precipitate speculation, governor Lamido Sanusi said on January 21.
It sells foreign currency at twice-weekly auctions to shore up the naira. The bank also sells dollars directly to lenders as irregular intervals.
Nigeria’s foreign exchange reserves have fallen 14% since last year's peak in May to $42.19-billion as of February 10, the lowest level since October 19 2012.– Bloomberg