Nigeria banned banks on Friday from reselling dollars bought at a currency auction to other banks, dealers said, a move aimed at curbing speculation in the beleaguered naira currency. According to dealers, this happened after trading halted for the second time in a week and meant banks who buy dollars from the CBN can not sell it to any other bank or anyone else except to the CBN. Here is an excerpt from a Reuters article confirming the development;
On Friday, trading was delayed until after 0900 GMT to allow dealers to submit demand for dollars to the central bank, the head of the Financial Markets Dealers Association (FMDA) said.The central bank then injected dollars into the market in what David Adepoju, president of the FMDA — the club of 40 banks, discount houses and brokerages that regulates the market — described as “a special forex auction”.
But dealers said the central bank then banned lenders from selling dollars sourced from it. The central bank had said the move would not be a one-off, Adepoju said.
“There is no longer price discovery on the naira. With the special auction you should be able to buy and sell, no matter where the market is,” one dealer said.
The central bank did not immediately comment. The bank chief said on Thursday there was “no need to panic” about the currency’s plunge.
Although the dollar sale on Friday was meant to calm nerves, dealers said it made two-way trading inactive, undermining Nigeria’s credibility as a smoothly functioning capital market, and could trigger its ejection from a JP Morgan emerging market bond index.
In the year after Nigeria joined the index in October 2012, foreign holdings of its bonds jumped from $1.2 billion to $5.4 billion, but JP Morgan said last month Nigeria’s inclusion was under review because of a lack of market liquidity.
Ejection from the index would trigger major capital outflows because investors who track it would have to sell Nigerian bonds. That would exacerbate a budget crunch in Abuja by removing a source of funding and further hammer the currency.
Two large sales were done at 198.50 naira to the dollar, totalling $40.8 million, before market close, which dealers said was part of the central bank’s intervention.