Nigeria's central bank has issued a ruling specifying that only foreign currency acquired in the interbank market can be used to fund unconfirmed letters of credit (L/Cs).

The order from the bank has increased demand for US dollars in the interbank market and weakened the naira.

L/C impacts

At the interbank market's foreign exchange auction earlier this week, the Nigerian currency was already trading at more than 152 naira to the US dollar.

Analysts are suggesting that the naira could weaken further against the US dollar as a result of the new L/C ruling.

Other factors

One factor that may help strengthen the naira is an upcoming sale of US dollars by the state-owned oil company, the Nigerian National Petroleum Corporation (NNPC).

But analysts suggest that the strengthening effect of NNPC's US dollar sale will be more than offset by increased demand for foreign currency from petroleum importers and the central bank's new L/C ruling.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.