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Nigeria Takes Fresh Steps Seen Boosting Naira Against the Dollar

Nigeria Takes Fresh Steps Seen Boosting Naira Against the Dollar
A clerk at a currency exchange bureau counts Nigerian naira banknotes in Maiduguri, Nigeria, on Wednesday, May 1, 2019. Nigeria will propose a supplementary budget later this year to boost capital spending and fund a 67 percent increase in the minimum wage as government revenues improve, Budget Minister Udo Udoma said. Photographer: Jean Chung/Bloomberg

Nigeria unveiled new measures to aid the country’s bruised currency, potentially helping to extend its recent rally.

The central bank on Monday offered to sell dollars to the country’s bureaux de change at the highest level since the naira was devalued at the start of the year. It also said it would ban the use of dollar collateral for naira loans, with the exception of eurobonds issued by the government and the guarantees of foreign banks.

“Depositors with dollar deposits who need naira will have to sell their dollars,” said economist Mosope Arubayi at IC Group. “This will improve market liquidity and ensure the naira trades at the right price, based on the true status of demand and supply.”

The naira was changing hands around 1,240 per dollar on the unofficial market, versus 1,248 on Friday, according to Abubakar Muhammed chief executive of Forward Marketing Bureau de Change Ltd., which tracks the data.

Nigeria has been trying to unify its official and unofficial exchange rates since the middle of last year as part of a raft of aggressive economic reforms aimed at spurring growth and attracting foreign capital.

Recent Rally

The naira has lost more than 60% of its value against the dollar in the process, but it has been on an upturn in recent weeks. The unit has bounced more than 20% from a low of 1,627 per dollar on March 8 amid aggressive monetary-policy tightening, with the central bank raising interest rates by 600 basis points to 24.75% so far this year.

Local dollar liquidity has also been boosted after it cleared a backlog of overdue dollar purchase agreements estimated at $7 billion.

In a separate statement, the Central Bank of Nigeria said it would sell dollars to bureaux de change at 1,101 naira per dollar. That compares to an official closing price of 1,251 on Friday – the most recent for which data are available. Bureaux de Change are allowed to sell foreign currency to customers at a spread of not more than 1.5% above the purchase price.

The measure “means the naira is likely to appreciate again in the parallel market against foreign currencies,” said Arubayi.

The new rate is the strongest level that the central bank has sold the greenback to BDCs since February, when it first offered them at 1,301 naira per dollar.

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