(Refile to fix typo in lede to read "of", instead of "or")
By Chijioke Ohuocha
LAGOS, April 25 Nigeria has weakened the naira
for investors but it may still struggle to attract dollars
unless it scraps its system of multiple exchange rates, analysts
said, doubting funds will flow back after the central bank's
latest currency moves.
The bank said on Monday it would allow investors to trade
the naira at rates determined by the market - a move intended to
improve the supply of dollars, but one that introduced yet
another exchange rate.
Nigeria already had five rates: the official rate, the black
market, a rate for Muslim pilgrims going to Saudi Arabia, a
retail rate set by licensed exchange bureaus and a rate for
foreign school fees.
The naira eased 18.3 percent to 374.25 to the dollar for
investors on Tuesday compared with the official interbank rate
of 305.90 and black market rate of 385.
"The move ... is unlikely to ... attract sizeable inflows
until there is harmonisation between the different markets,"
said Razia Khan, Africa chief economist at Standard Chartered
The stock market, which has languished as
foreign investors fled, welcomed the move, gaining 0.4 percent
Tuesday after rising more than 2 percent the previous session
However, the new policy will mask pressure on the naira as
the central bank tries to avoids a currency devaluation.
The International Monetary Fund has urged Nigeria to scrap
its multiple exchange rate regime to revive its economy, which
is in its second year of recession.
"The central bank is seeking to fine-tune its FX policy
without a fully fledged devaluation, (but) the proof will be in
the pudding," said Aly-Khan Satchu, head of Nairobi-based Rich
Nigeria is battling a currency crisis brought on by low oil
prices, which has tipped its economy into recession and created
chronic dollar shortages. It wants to attract foreign investors
and at same time maintain a strong naira to ward off inflation.
The central bank last year removed a temporary peg to float
the currency, but to protect its precariously low foreign
reserves it introduced the convoluted exchange rate system that
sees different buyers paying various rates for dollars.
The bank has been using the forward market to meet dollar
demand, making only tiny volumes available on the spot market
and using those sales to influence the naira's official value in
a bid to narrow the currency spread with black market rates.
"The segmentation of forex demand through the adoption of
multiple FX arrangements impedes the exchange rate from reaching
true equilibrium," said Cobus de Hart, senior economist at NKC
in Johannesburg. "Weak central bank credibility will
unfortunately not help matters much, with the bank backtracking
on previous decisions on numerous occasions in the past."
(Additional reporting by Oludare Mayowa; Editing by Larry King)