Nigeria’s central bank has introduced longer-term contracts on the naira in a move to attract more foreign inflows, shore up its dwindling dollar reserves and stave off a currency devaluation, traders said.

Central Bank Governor Godwin Emefiele last month said that no adjustment of the naira was planned and that the bank would continue to sustain the value of the currency, even though its dollar reserve was shrinking.

He has kept the naira stable even as oil prices drop and foreign investors book profits on local bonds in response to falling yields. The bank operates a multiple exchange rate regime that it has used to manage pressure on the naira.

The central bank on Thursday offered naira-futures contracts for five-year settlement for the first time, priced at 379.81 naira to the U.S. dollar, traders said. The longest tenor prior to this was a 13-month contract, which the central bank has offered for more than a year.

The naira has come under pressure this year as importers demand dollars to feed Nigeria’s consumers and as market sentiment worsen by fears that the coronavirus outbreak would hit Chinese demand, one of Nigeria’s major trading partners, and dampen growth.

Nigeria’s currency market has seen little dollar supply for a while as foreign investors stay on the sidelines owing to lower yields in the debt market, traders said.

Analysts welcomed the move as providing opportunities to hedge currency risk and develop the futures market but said that further reforms were needed to boost secondary market trading on the futures.

RISK OF NEW CAPITAL CONTROLS

“The longer futures curve may not necessarily result in renewed portfolio inflows at this point. Government bond yields are too low for foreign investors to get involved in longer-dated debt, hedged or non-hedged,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank.

The central bank now has sixty futures contracts outstanding from 13 earlier, traders said, underscoring the pressure to attract inflows and to boost reserves. The contracts trade on the FMDQ OTC Securities Exchange.

Nigeria’s forex reserves declined to $36.68 billion as of Feb. 10, down 12.4% from a year earlier, central bank data showed on Thursday, as the bank burns through its dollar savings to support the naira.

The West African nation has been selling debt to shore up reserves. It has floated the idea of tapping the Eurobond market this year to raise up to $3 billion after staying away last year.

Cobus de Hart, senior economist at South Africa’s NKC African Economics said Nigerian reserves could remain under pressure if oil prices stay low and imports continue to rise, raising the risk of new capital controls being imposed.

On the official currency market supported by the central bank, the naira was quoted at 306.95 while on the over-the-counter spot market it was quoted weaker at around 364.

The forwards market on Thursday priced a much weaker naira at 399.73 to the dollar in a year’ time.