Nigeria’s central bank sold $500 million at 280 naira to the dollar at the interbank market on Monday after a “managed float” of the naira failed to attract trading between banks due to liquidity concerns, traders said.
Interbank trading was extended until 5 p.m. (1600 GMT), as naira slumped 30 percent against the dollar after the central bank removed its currency peg in an effort to alleviate the chronic foreign currency shortages choking growth in Africa’s biggest economy.
The central bank sold $530 million for 280 naira per dollar at a special auction and later sold a further $86.5 million directly on the interbank market at 281 to 285 naira, Elombah.com learnt.
Monday’s rate was notably weaker than the 197 peg the central bank had maintained for 16 months before abandoning it last week in a bid to alleviate chronic forex shortages and stop the economy from sliding into recession.
The naira had traded just twice by midday, before the central bank held its special auction to clear a backlog of hard currency orders. Less than $1 million had changed hands, prompting an extension of the trading day to 5 p.m. (1600 GMT), dealers said.
Black market currency dealers were quoting the naira at 325 to 345 naira to the dollar, up to 10 percent stronger than on Friday, on expectations more hard currency liquidity on the interbank market would reduce demand on the street.
The central bank has said it may inject foreign exchange into the interbank market to increase liquidity and reduce a backlog of $4 billion backlog of demand, which could take four weeks to clear.
“We suspect that the best way to talk about the new exchange rate regime is still as a managed float, but a managed float that is responsive to market forces,” Citi analysts said in a note. “The new structure does provide a platform for the CBN (central bank) to easily step further away from the market.”
Non-deliverable forwards – contracts used to bet on future exchange rate moves – priced the naira at 302 per dollar in one month’s time. They initially weakened to a record 310 to the dollar.
Nigeria’s central bank is “reasonably optimistic” the naira will settle around 250 to the dollar after an initial period of weakness following a flotation, the bank’s governor said in a June 3 letter to President Muhammadu Buhari.