The Central bank Of Nigeria’s latest circular reducing the FX trading position of banks to 0 percent of shareholders’ funds from 1 percent has led to a collapse in interbank FX liquidity.
Investigations show that the circular has also left foreign investors trapped in the market, including those who ordinarily would not have considered exiting the market.
According to trading sources, FX turnover on the interbank market may have dropped to $30-50m a day, from around $500m in the past.
“Before the announcement, foreign investors were gradually starting to consider long NGN positions in the non-deliverable forward market, albeit in short-dated positions. So we were moving towards an inflection point where some investors could have tentatively taken NGN risk for the first time in several weeks. Yet the latest FX circular has weighed negatively on confidence.” Samir Gadio, Head of Africa Strategy, FICC Research at Standard Chartered Bank told BusinessDay in response to questions.