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Sudan's central bank raises margin on pound
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Nov 29, 2010 - 7:06:42 AM

Sudan's central bank raises margin on pound

By Opheera McDoom

KHARTOUM (Reuters) - Sudan's central bank on Sunday raised the margin for banks to buy foreign currency to 17.6 percent above their official rates, trying to bring more liquidity into the system as the black market inched higher.

Sudan's pound has been hit by speculation of an economic shock or possible renewed conflict as the oil-producing south of the country hurtles towards an expected vote for independence from the north in a January 9 referendum.

Many Sudanese have horded foreign money and the central bank implemented restrictions to prevent capital flight and bring hard currency back into the system, hoping to crush the thriving black market which had left banks short of hard cash.

Analysts and traders said a central bank policy implemented last week ordering banks and exchanges to buy forex at a 16.29 percent margin over their official rates was an effective temporary devaluation of the pound, which the bank hoped to row back once uncertainty around the referendum subsided.

Last week the dollar could buy 2.9 Sudanese pounds on the black market. On Sunday traders were offering between 3 and 3.1 pounds for the dollar despite the central bank move.

"The basic problem here is liquidity - the black market is continuing to rise because there isn't enough liquidity yet," said one trader.

Sudan operates a managed float system whereby the central bank calculates an indicative rate based on the previous day's transactions and intervenes if the pound moves more than plus/minus 3 percent from that rate.

The initial margin set by the central bank last week of 16.29 percent added onto the upper limit of last week's indicative rate was equivalent to the black market rate of 2.9 pounds.

Sunday's 17.6 percent margin above the upper limit of 2.54 on the central bank's web site www.bankofsudan.org/ equals 2.99 pounds, almost equal to the black market rate.

The central bank declined to comment on Sunday's margin rise. But it said in its initial announcement that it would change the margin whenever it deemed necessary.

It hopes the policy will eventually bring liquidity back into the official market, erasing any need for a black market and restoring investor confidence.