Stricter rules for money changers that take effect this week will help the central bank shore up reserves and bolster the naira before next year’s elections, according to Vetiva Capital Management.
Money-changers have until tomorrow to meet raised minimum capital requirements, according to revised directives published July 8 on the Abuja-based Central Bank of Nigeria’s website. License fees will also increase, it said. The number of traders seeking dollars from the regulator has depleted foreign-currency reserves of Africa’s biggest oil producer, which are down 17 percent from a year earlier, according to the institution.
The moves are “aimed at reducing the speculative demand for foreign exchange over the election cycle,” Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management Ltd., a stock broker and money manager, said in an e-mailed response to questions yesterday. “We view this as positive for the currency if properly implemented, and if successful, could prevent any aggressive tightening of monetary conditions.”
The naira gained 0.1 percent to 161.85 per dollar as of 4 p.m in Lagos. The currency advanced 0.6 percent this month as foreign-exchange reserves climbed to the highest since March following an increase in oil output. Crude is the nation’s biggest source of foreign currency. The central bank sells dollars to lenders and money-changers twice a week at auctions where it keeps the naira at 3 percent above or below 155 per dollar.
Devaluation Threat
Between January and March, reserves dropped for 48 straight days, the longest on record. The naira also hit a record low after central bank Governor Lamido Sanusi was suspended, spurring speculation that the regulator will change the peg. A devaluation may now be off the table until after the election, Yvonne Mhango, a sub-Saharan African economist at Renaissance Capital, said.
“I don’t expect a devaluation in the short term,” she said. “Especially going into an election year, what will help is if they can sustain policy as it is today.”
The new rules will improve oversight of bureaus de change as the central bank “will know who they are” Bismarck Rewane, chief executive officer of Lagos-based Financial Derivatives Co., said by phone. It will also help stamp out the illegal movement of dollars by terrorists used to import arms, he said.