The Central Bank of Nigeria on Thursday marginally adjusted the exchange rate of the Naira to the United States’ dollar from N197 to N196.95. Prior to adjustment, the rate had been swinging between N197 and N199 in the past few months. It is about five kobo difference.

The change might be an indication that the CBN was beginning to think about how to loosen its currency regime to reflect its current supply of dollars to the market. “We are not fixing rates. The present rate is a reflection of the level of dollar supply in the market,” the CBN spokesman, Ibrahim Mu’azu, said.

The Naira had traded on thin volumes at 198.95 to the dollar on the interbank market on Thursday, before two large sales that totaled $36.4m were done at N196.95 towards the close of the forex market.

The naira is trading between 215 and 218 against the dollar at the parallel market.

The slight adjustment might also be the CBN’s way of testing the market to see if it is ready for a looser currency regime. Ayodeji Ebo, head, Investment and Research, Afrinvest West Africa Limited, said the CBN’s action might be linked to the relatively reduced pressure on the external reserves. “It is a rate adjustment but it is too small to be called a revaluation. The adjustment is too small to cause any pressure on the naira. The CBN feels the action will not affect its defence of the naira,” he said.

Another economist, however, said the move would hurt the country’s precarious forex reserves position.

However, Angus Downie, head of Research at Ecobank, said that “by lowering the rate offered to banks albeit very moderately, the central bank is adding to pressures on forex reserves …equivalent to around 4.9 months of imports.”

Small changes in the rate could possibly allow the central bank to gauge the changes in demand and supply dynamics, which will inform decisions on when and how best to start lifting forex restrictions.

The nation’s external reserves had fallen to $29.4bn as of June 2, down 20.1 per cent from a year ago as the central bank burns cash to defend the local currency.

The naira has lost 8.5 per cent of its value since the start of the year after sharp falls in the price of oil. That forced the central bank into a de facto devaluation and fixing of the exchange rate in February in order to protect its dwindling foreign reserves.

The regulator also banned commercial lenders from re-selling central bank dollars among themselves, which was an attempt to curb speculation on the naira.

By Dike Onwuamaeze

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