(Updates with comment from trader in 11th paragraph.)
Oct. 14 (Bloomberg) -- The naira headed for the biggest two-day drop in more than 2 1/2 years against the dollar after Nigeria’s central bank said foreign companies will need to use their own funds to repatriate dividends and capital.
The rules, which the Abuja-based bank released in a circular on its website today, mean companies will be restricted to using the interbank market rather than the twice-weekly official foreign-exchange auctions to buy dollars, said Samir Gadio, an emerging-markets strategist at Standard Bank Group Ltd. in London.
The currency weakened as much as 1.2 percent to 161.8 per dollar by 1:24 p.m. in Lagos, taking its two-day drop to 3.6 percent, the most since the two days through Jan. 13, 2009, on a closing basis. The naira is the second-worst performer worldwide after Mongolia’s tugrik, according to data compiled by Bloomberg.
“It will make it more difficult for foreign companies operating in Nigeria to repatriate their foreign-exchange proceeds, unless they agree to take a hit by purchasing dollar- naira at a higher level,” Gadio said by e-mail today. “Given the lack of dollar liquidity in the interbank market and absence of significant inflows, filling the extra demand will be extremely complicated.”
The level set at auction is used as the prevailing exchange rate, while the interbank rate moves freely.
Companies and lenders sought to buy $736.9 million at the Oct. 10 sale, the most this year. The central bank sold naira outside its targeted band at a Sept. 26 auction as declining crude prices and reserves made it difficult for Nigeria to defend the currency. The target band is three percentage points above or below 150 per dollar.
Fuel importers will need to apply for foreign exchange at least two days before the auction, provide final shipping details 30 days after the arrival of cargo and show quarterly receipts of sales to be allowed access to central bank sales, the regulator said in a separate circular today.
“It’s as if only domestic corporates will be allowed to access the window,” said Gadio. “Even that will be restricted given the regulation included in the second circular.”
Nigeria, Africa’s biggest oil producer, imports most of its fuel products because of a lack of refining capacity.
Central bank Governor Lamido Sanusi increased the benchmark interest rate 2.75 percentage points to a record 12 percent and met all dollar demand at the most recent auction on Oct. 12 in an attempt to stem the naira’s decline. The currency depreciated 166.6 per dollar on Oct. 10, the weakest since at least 1994.
The bank “is curtailing demand at its auction, but putting the pressure on autonomous markets that have to cater for heavy remittances and import bills, with the tendency to depreciate the naira,” Usman Onoja, chief executive officer of Lagos-based Lovonus Trust and Investment Ltd., which trades in currencies, said by phone. “The permanent solution is to have refineries and industries, which will suppress importation and reduce pressure of funding the forex market on central bank.”
Nigeria’s inflation rate rose for the first month in four to 10.3 percent in September as the government raised spending and a weaker naira boosted import costs.
Inflation accelerated from 9.3 percent a month earlier, the statistics agency said today. The median estimate in a Bloomberg survey of four economists was 9.7 percent.
The government doubled the minimum wage for state workers in August and the government budget for 2012 aims to boost spending, adding to price pressures in sub-Saharan Africa’s second-biggest economy.
“One can argue that the new regulations are an attempt to ease the pressure on the auction window and smooth the erosion of foreign reserves,” said Gadio. “The new stance is at odds with previous attempts to unify the official and interbank exchange rates.”
The West African nation’s foreign-currency reserves dropped to $30.9 billion on Oct. 7, the lowest in more than a year, according to data from the Abuja-based central bank. The country’s benchmark Bonny Light crude oil has fallen 13 percent since reaching a three-year high on April 8.
--With assistance from Emele Onu in Lagos. Editors: Ana Monteiro, Alex Nicholson
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