LAGOS Oct 14 – Nigeria’s central bank will sell two-month dollar forwards at an auction on Friday to clear a backlog of demand from airlines, manufacturers and other companies, traders and the ministry of transport said, as the country’s currency crisis deepens.
Dollar shortages have caused many firms to halt operations and lay off workers, compounding an economic crisis exacerbated by the fall in global prices for oil, which accounts for 70 percent of Nigeria’s budget revenue.
The central bank has struggled to support the local currency as its dollar reserves have dropped to more than an 11-year low of $24.2 billion. Traders say the naira has been testing new lows as they try to find thresholds where liquidity can begin to return.
Traders said that in Friday’s one-off special auction, the central bank will debit customers’ naira accounts on the day but deliver the dollars in two months’ time. Bid rates will be published after the auction, they said.
“This important one-off exercise is dedicated to the clearance of the backlog of matured foreign exchange obligations,” the ministry of transportation said in a statement.
Domestic and international airlines operating in Nigeria have struggled with the plunge in the local currency that has made their jet fuel bills in U.S. dollars ever more expensive and also hurt their profitability as their passengers pay in naira.
The country’s first recession in more than two decades is also squeezing profits.
Trading on the interbank has been slow due to the shortage of dollars. On Friday there was no trade for more than four hours after the open, with the currency then offered at 311 naira to the dollar in a single trade of $500,000 at 1211 GMT. The naira closed at 305 per dollar.
The overnight lending market closed with no deals done at all, as commercial lenders held onto the naira so they could participate in the central bank dollar auction, traders said.
The currency was sold at 460 per dollar on the black market. Traders say Friday’s “special auction” rate may close higher than the interbank rate.
In June, Nigeria scrapped its currency peg, hoping that the overvalued naira’s fall would attract investment into Africa’s biggest economy. After that, the central bank auctioned $3.5 billion on the forward market to clear a backlog of dollar demand.
But four months on, the naira keeps falling while investors stay away, leaving the central bank as the main supplier of greenbacks. Many traders wonder how much further the local currency can fall.
On Friday, Stanbic IBTC Bank, in a notice said it will limit customers’ use of naira debit and credit cards for international transactions from next week on account of current market conditions. Other lenders may follow. (Additional reporting by Felix Onuah in Abuja; Editing by Hugh Lawson)