Nigeria’s central bank has introduced longer-term contracts on the naira in a move to attract more foreign inflows, shore up its dwindling dollar reserves and stave off a currency devaluation, traders said on Thursday.
Central Bank Governor Godwin Emefiele last month said that no adjustment of the naira was planned and that the bank would continue to sustain the value of the currency, even though its dollar reserve was shrinking.
He has kept the naira stable even as oil prices drop and foreign investors book profits on local bonds in response to falling yields. The bank operates a multiple exchange rate regime that it has used to manage pressure on the naira.
The central bank on Thursday offered naira-futures contracts for five-year settlement for the first time, priced at 379.81 naira to the U.S. dollar, traders said. The longest tenor prior to this was a 13-month contract, which the central bank has offered for more than a year.
The naira has come under pressure this year as importers demand dollars to feed Nigeria’s consumers and as market sentiment worsen by fears that the coronavirus outbreak would hit Chinese demand, one of Nigeria’s major trading partners, and dampen growth.
Nigeria’s currency market has seen little dollar supply for a while as foreign investors stay on the sidelines owing to lower yields in the debt market, traders said.
Analysts welcomed the move as providing opportunities to hedge currency risk and develop the futures market but said that further reforms were needed to boost secondary market trading on the futures.