* Individuals now getting fewer dollars for their naira
* Investors say Nigeria needs clearer, bold devaluation
* Traders say new rules hard to understand
* President Buhari is in London on medical leave
By Chijioke Ohuocha and Karin Strohecker
LAGOS/LONDON, Feb 22 Nigeria's latest efforts to
tweak its exchange rate policy have baffled investors who say
the moves fall short of the currency devaluation they had hoped
for and will not lure money back into the economy.
The central bank this week effectively devalued the naira
for private individuals by offering them dollars at a rate of
366 naira, instead of the official 305 rate which it has held
since last summer at the behest of President Muhammadu Buhari
On Tuesday it sold dollars at forward exchange rates up to
15 percent weaker than the official rate. The move may cement
expectations for the central bank to allow the naira to trade at
a weaker level in the future. Yet on Wednesday, the bank
intervened on currency markets at 304.5 per dollar.
Investors said it was just another bungled attempt by
authorities to avoid a much-needed bold devaluation. Without
that, they say, Africa's biggest economy will fail to recover
from recession and an investment drought.
Cobus de Hart, senior economist at NKC African Economics in
Johannesburg, said the central bank had been in two minds on how
to behave for a couple of years.
"This is one of the key issues - the central bank's policies
are not clear and they continue to confuse both investors and
the local population," de Hart said.
President Buhari, an opponent of devaluation, has been on
medical leave in Britain for over a month. Vice President Yemi
Osinbajo, now acting president, helped usher in last June's 30
percent devaluation - also while Buhari was on medical leave.
"We don't know who is calling the shots on this ... The vice
president seems a lot more liberal on this, which is good, but
we are still uncertain where the actual orders are coming from
and how independent the central bank is," de Hart added.
Under the latest rules, Nigerians wanting dollars for travel
or to pay foreign school fees could buy at nearly 20 percent
above the official rate, effectively devaluing the naira for
private individuals. Priority allocation no longer goes to
The black market rate firmed to 505 to the dollar from 515
on Wednesday following central bank intervention.
Currency traders in Lagos say they were struggling to
understand the new rules, especially when showing quotes to
foreign investors looking to buy Nigerian bonds.
"I don't have flexibility on the rates any more because
various markets on the interbank have different rates ... This
is not the devaluation we have been waiting for," one
Lagos-based trader told Reuters.
"Though liquidity is improving ... I don't think we have
overcome the liquidity challenge completely."
Multiple exchange rates have been used by other developing
economies experiencing economic difficulties, often to assuage
hard currency shortages in key sectors. Venezuela moved from a
three-tiered to a dual exchange rate system last year.
Many say Nigeria should bite the bullet and follow the
examples of Egypt and Russia by opting for a total free float
and bearing short-term pain for long-term gain. Both countries
saw their currencies plunge after the float but later enjoyed a
recovery in exchange rates and investments.
Nigeria's decision to freeze the naira has already caused a
lot of woes. JPMorgan announced in 2015 it would cut Abuja's
debt from its influential bond index. Factories had to shut
down, unable to import raw materials and machinery due to the
lack of hard currency.
Yet authorities also managed to rebuild reserves, which hit
the highest level in 19 months in February, providing a window
of opportunity for a bolder move.
"If you go for a much larger, credible FX adjustment you
will get the inevitable overshoot – then you could actually 'do
an Egypt' and see inflows returning, which could lead to FX
appreciation," said Kevin Daly, portfolio manager emerging
market debt at Aberdeen Asset Management.
Others say half-hearted policy moves will erode the already
low levels of trust in Nigeria's central bank, especially after
it failed to make good on last year's pledges to introduce
market-based exchange rates.
"Nigeria theoretically floated the currency last summer and
yet it didn't actually float so investors got burned," said
Charlie Robertson at Renaissance Capital.
"If you have multiple exchange rates and uncertainty about
where we are going ... then investors will be slow to respond to
even a more competitive currency."
(Additional reporting by Sujata Rao; Editing by Gareth Jones)