LAGOS, Feb 18 – Nigeria’s central bank plans to boost dollar sales for school fee payment and travel abroad so as to reduce the premium paid on the black market and support the naira, a senior banker said on Saturday.
The naira is quoted on the black market at a discount of around 40 percent to the official interbank market, where it has closed at 305 to the dollar since last August.
The regulator met with senior bankers at an industry event on Friday to discuss ways to address dollar shortages on the official market, one banker who attended the meeting told Reuters late on Saturday.
The central disbursed $2.83 billion to critical sectors of the economy in December and January. However, analysts estimate outstanding dollar demand at around $4 billion.
The bank has been trying to clear the backlog via forward contracts sold to manufacturing, agriculture and airline companies, hoping also to help drag Nigeria out of its worst recession in 25 years, triggered by low oil prices. But retail currency users have been left out, fuelling the black market. On Friday, the naira hit a new low of 516 to the dollar on the unofficial market.
“Individuals have been complaining of not getting dollars,” the banker said. He said the outcome of the meeting with the central bank was that dollars would be sold to them at the rate used by international money transfer firms – around 375-380 naira.
In Nigeria, retail currency users buy dollars from licensed bureaux de change (BDC).
However, due to the central bank’s inability to meet dollar demand, BDCs have tended to source dollars from private sources and resell at a much higher margin. The bank normally sells around $8,000 a week each to some 3,000 licensed retail operators.
While these operators account for less than 5 percent of foreign currency trading in Nigeria, they help drive the exchange rate due to the scarcity of dollars on the official channel. The central bank, under pressure from the government, has been pressing retail operators to narrow the gulf between the official and parallel exchange rates.
The banker said it was agreed at the meeting that individuals would be required to present their tax certificate before buying dollars, in a bid to dampen demand and also boost tax coverage.
Analysts expect the central bank to allow greater flexibility on the currency this year.
“We think the most probable outcome of an FX policy adjustment is a managed float, possibly a new peg, but a full float is unlikely,” Yvonne Mhango, economist at Renaissance Capital wrote in a note to clients.
Mhango said a rise in Nigeria’s foreign reserves since November could help the bank make the adjustment at a level at which it can support the currency. She forecast a year-end interbank rate of 447 naira per dollar. – Reuters