CBN Trying to Make FX Rates Converge

Nigeria's central bank has been working to make the exchange rates for its currency converge on the official and black markets, its spokesman said, and plans to offer $100 million on the forward market on Tuesday to boost liquidity.

Reuters reports that Nigeria runs a system of multiple exchange rates, and the central bank has sold more than $4 billion on the spot and forward markets in its efforts to increase liquidity. In theory, greater liquidity should lead the rates to converge.

The naira was quoted weaker on Tuesday at an investor trading window, at 380.31 per dollar, data from market regulator FMDQ OTC Securities Exchange showed. The official market rate was 305.85 and the black-market rate 390.

"The bank was committed and was indeed working to achieve convergence in the forex rates between the interbank and the bureau de change segment," said its spokesman Isaac Okorafor.

The central bank said all dollar allotments must be backed by demand and that it will settle Tuesday's dollar sale between one week and 45 days after the sale.

Earlier, the bank offered $100 million on Thursday but sold $85.69 million. Okorafor said in a statement lenders did not take up the whole offer, which meant there was "enough foreign exchange to meet legitimate demand".

Analysts doubt whether the central bank can sustain such sales. The convoluted exchange rate system masks pressure on the naira with the regulator trying to avoid a devaluation.

Okorafor said the bank has the capacity to sustain its intervention.

Nigeria's dollar reserves grew to a 19-month high of $30.8 billion last week, thanks to a recent rise in global oil prices, the country's main source of hard currency. But reserves remain far off the peak of $64 billion they reached in August 2008.