A trader changes dollars for naira at a currency exchange store in Lagos, Nigeria, February 12, 2015.
Image by: JOE PENNEY / REUTERS
Image by: JOE PENNEY / REUTERS
Nigerian currency dealers have introduced a maximum resale premium on dollar trades on the interbank market to boost liquidity after the naira touched a record low in thin trade on Friday.
The naira traded without a pre-determined premium - or spread - on Friday, a trader at one of the 15 primary market dealers, told Reuters. Traders under the umbrella of the Financial Market Dealers Association (FMDA) set the spread at a ceiling of 0.50 naira per dollar on Monday, he said.
The naira tumbled 4.3 percent to 295.25 per dollar on Friday before recovering slightly to close at 290.
On Monday the first trade of $780,000 occurred at 292.40 naira to the dollar at 1116 GMT, more than three hours after the market opened. Another trader said activity was slow pending intervention by the central bank.
"There is a lot of demand," the trader said. "We can buy at any rate but resale spread should not be more than 0.50 naira," he said, quoting an email from the FMDA.
Traders were permitted to set their own spreads on Friday to try to attract liquidity, he said.
With primary dealers required to resell 70 percent of any dollars bought from the central bank on the day of purchase, low turnover on the interbank currency market has the effect of driving down the value of the naira.
Any resale of dollars must be backed by a specific customer order to avoid currency speculation.
The central bank said last month when unveiling currency reforms that the naira would trade with no pre-determined spreads.
It ditched its 16-month old peg on the naira in June to allow the currency to trade freely on the interbank market but thin liquidity has hampered activity, traders say, leaving the central bank as the main supplier of hard currency.
Other past suppliers of dollars, including oil firms, are now selling part of their hard currency directly to petrol importers under an arrangement with the government, traders say.
The central bank governor flew to Britain and the United States last week to try to lure back investors scared off by the plunge in oil prices and resulting financial turmoil.
Some $697 million the central bank sold in one-month forward contracts fall due later this month, traders said, with contracts for July delivery quoting the naira at 279.
On non-deliverable forward markets, the one-month naira-dollar forward was quoted at 314. The one-year contract fell as low as 351 per dollar.
On the black market, the naira was quoted at 365 per dollar on Monday.
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