Nigeria sells treasuries to lure foreign investors after FX ban for food imports

ABUJA: The Nigerian central bank auctioned treasury bills on Wednesday at higher rates to try to lure foreign investors, hours after it was announced that the president told the bank to ban access to dollars for food imports.

Pressure has been building on the naira currency as oil prices drop and foreign investors book profits on local bonds in response to falling yields. Crude sales account for 90% of foreign exchange earnings and two-thirds of government revenues in Nigeria, Africa's top oil producer.

The bank auctioned 34.4 billion naira worth of bills, paying 12% for the longest tenor one-year paper, up from 11.2% it paid at its last sale, on ample demand for the bills, traders said.

Banking stocks fell 1.26% on Wednesday, to help drag the main share index to a more than two-year low as negative sentiment persisted on the stock market.

Traders said the bank told them to increase their rates at the bills auction from last auction rates as the central bank tries to lure foreign inflows.

The central bank last month shifted policy to try to force banks to lend to help revive an economy stuck with low growth after a recent recession. But with falling oil prices and foreign investors taking profits, the naira is regaining focus.

On Friday, the naira eased to 364 per dollar, from a quote of 363.50 as falling oil prices tightened liquidity on the currency market. The currency was quoted at 364 on Wednesday on thin liquidity, traders said.

A dollar shortage was initially caused by a slowdown of foreign inflows after local debt market yields declined.

UNCERTAINTY

"As the naira came under increasing pressure ... stepping up demand management policies in the foreign exchange market furthermore suggests that the central bank faces increasing problems propping up the currency through open market operations," said Malte Liewerscheidt, vice president of Teneo Intelligence.

Nigerian President Muhammadu Buhari on Tuesday told the central bank to stop providing funding for food imports, his spokesman said, in a further sign of pressure on the currency.

A spokesman for the central bank, which is an independent body, has not responded to text messages and phone calls seeking a comment on whether or not the request will be heeded.

Traders said the market was waiting for more information on how such a ban would be implemented, especially for importers with existing lines of credit.

"This adds to the level of uncertainty in the market. How the central bank would implement this remains unclear," one trader said. "Some of the items may already be included in the earlier ban."

In 2015 the central bank banned access to foreign exchange for 43 items in a bid to curb dollar demand, though it continued to sell dollars to offshore investors to boost confidence.

Nigeria, which has Africa's biggest economy, operates a multiple exchange rate regime, which it has used to manage pressure on the currency.

The official rate of 306.90 is supported by the central bank but the traded rate of 364 is widely quoted by foreign investors and exporters.