Nigeria's Central Bank's Restricts Currency Trading

By Josie Cox in London and Gbenga Akingbule in Abuja, Nigeria 

        Tumbling oil prices are exacting a heavy toll on Nigeria, Africa's largest economy and one of the world's most dependent on crude.
        The central bank late Wednesday imposed new foreign-exchange controls aimed at stopping a 15% plunge in the naira this year. The bank is barring dealers from depositing their currency-trading funds overnight, preventing them from after-hours trading and placing bets for or against a single currency at the close of a trading session.
        The move is temporary, according to Olakanmi Gbadamosi, director of the central bank's trade and exchange department. Any infraction, he said, will "attract appropriate sanctions, which may include suspension from the foreign-exchange market."
        Africa's biggest crude exporter has proved acutely vulnerable to falling oil prices in recent weeks. Its government, which earns 80% of revenue from oil, is heading toward a costly presidential election in February, and is also spending around $6 billion a year battling the Islamic insurgency Boko Haram, which on Tuesday kidnapped at least 191 women and children from a northeastern village.
        As crude prices fall, investors and economists worry the country could run out of budgetary room to finance those commitments.
        "There are a lot of people who are afraid," said Bismarck Rewane, managing director of advisory firm Financial Derivatives Co. in Lagos. The new central bank controls, he added, would likely have little impact.
        "At this point, everything depends on the oil price," he said.
        The global benchmark for crude has fallen to less than $60 a barrel recently from more than $100 earlier this year.
        The naira's oil-fueled decline, combined with uncertainty over how Nigeria's government will scale back spending, helped stoke a series of strikes this week. Government hospital workers are protesting poor working conditions, and state radio broadcasters are on strike citing low wages.
        Most critically, Nigeria's oil workers have been on strike since Tuesday. They want the government to lower the price of fuel, which is subsidized, and to fix mountainous roads which they say have claimed the lives of truck drivers. They also want parliament to pass a bill that would reform the country's petroleum sector which has stalled since 2008.
        By Thursday, most gas stations in Nigeria had shut down, forcing drivers hoping to head home for Christmas to face long lines to fill their tanks.
        "We may be stranded," said Uzochukwu Madumere, a civil servant trying to drive to his hometown this week.
        Nigeria's plight resembles that of Russia, another big oil exporter whose economy has been stung by falling crude prices as well as Western sanctions. The government of President Vladimir Putin has been forced to jack up interest rates to stem a sharp selloff in the ruble.
        Nigeria's naira slipped to 187.45 against the U.S. dollar on Thursday, according to FactSet data, an all-time low. It has fallen almost 5% in December.
        The central bank has tried to halt the slide through increasingly broad measures. Last month, it raised its key lending rate 100 percentage points to 13% and devalued the currency to 168 against the dollar from 155.
        Wednesday's measures are unlikely to stop the fall, said Ayo Salami, chief investment officer at Duet Group Asset Management, which oversees about $5.5 billion.
        "It might help to support the naira in the next day or two, but the naira's fortune is so strongly linked to oil, that unless that market stabilizes, the currency will continue to depreciate," he said. Like other action that the central bank has taken in recent days, this "smells of desperation," Mr. Salami added.
        The government has recently tried to diversify the country's economy beyond commodities, but oil and natural gas still account for around 96% of Nigeria's export revenue.
        Earlier this month, Nigeria's finance ministry trimmed its budgeted Brent crude oil forecast to $65 a barrel from $73. The central bank has also repeatedly intervened in currency markets by selling U.S. dollars in a bid to prop up the naira. So far, however, that has offered limited respite.
        The Nigerian all-share stock index fell 2.8% on Thursday taking declines so far this year to nearly 30% and so far this month to more than 16%.
        Drew Hinshaw contributed to this article
        Write to Josie Cox at josie.cox@wsj.com
        (END) Dow Jones Newswires

        December 18, 2014 17:36 ET (22:36 GMT)

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