Nigeria limits oil firms’ FX transfers from crude oil

*A view of Central Bank of Nigeria headquarters next to National. Ecumenical Centre in Abuja, Nigeria November 23, 2021. REUTERS/Afolabi Sotunde.

Abuja — Nigeria’s central bank has set a limit on foreign currency transfers from crude export proceeds by international oil companies to their parent firms, in its latest measure to improve dollar supply in the local currency market.

In a circular dated Feb. 14, the Central Bank of Nigeria said banks could in the first instance transfer a maximum of 50% of crude export proceeds to oil companies abroad.

They could then transfer the balance after 90 days of the deposit of the proceeds.

However, because international companies lend and borrow between themselves in a process known as “cash pooling”, analysts expect the impact of the new rule to be marginal.

Africa’s largest economy has been experiencing crippling dollar shortages that has pushed its currency to record lows, although central bank governor Olayemi Cardoso has said that dollar liquidity was improving.

The latest move is part of a series of central bank reforms aimed at boosting dollar liquidity which dried up in the aftermath of a previously low oil price in 2016 and then disruptions associated with the COVID-19 pandemic.

On Thursday, the naira fell to a record low of 1,606 to the dollar after the circular was made public. It later recovered to close at 1,476 naira, around the level on the unofficial parallel market.

The central bank said it wanted to ensure that foreign transfers are done with minimal impact on liquidity in the currency market while supporting oil firms to have easy access to their crude proceeds.

Cardoso has said the currency will adjust once rules for market participants are made clear.
Last week, the central bank hiked open market rates to draw investors to bills as inflation climbed to a nearly three-decade high and lagged behind the benchmark policy rate.

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The bank has also scrapped caps on forex spreads on the interbank market.

*Chijioke Ohuocha, Isaac Anyaogu; editing: Ros Russell – Reuters

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