Trading in Nigeria’s inter-bank currency exchange market froze on Wednesday, after the Central Bank decided to tighten restrictions on foreign exchange transactions by commercial banks.

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The Central Bank’s move aims to arrest speculation on the country’s currency. A massive drop-off in oil prices has contributed to the rapid devaluation of the Nigerian naira since mid-December of last year, according to Central Bank officials, along with price inflation as high as 20% on consumer goods.

From 2006 to the end of 2008, the West African oil exporter’s large foreign exchange inflows kept inflation in the single digits. Foreign exchange receipts were fed by export proceeds from oil, FDI and portfolio inflows, remittances, aid and foreign borrowing. But in the first two weeks of December, crisis conditions fueled a surge in demand for foreign exchange, driving up inflation and sparking devaluation of the currency. According to a statement by the Monetary Policy Committee of the Central Bank, year-on-year headline inflation rate at end-December 2008 was 15.1 per cent compared with 6.6 per cent at end-December 2007. The naira has lost more than 20 per cent of its value against the dollar in two months.

The exchange rate adjustment is alarming importers, who are suddenly finding themselves with large accumulated debts. Nigeria’s Vanguard newspaper reports that nationwide, prices on products like ink, electronics, cars, computers, and raw materials have started rising with the new exchange rate, which climbed by as much as 40 per cent in three weeks. Professor Chukwuma Soluda, Governor of the Central Bank, said today that the Central Bank’s foreign exchange control measures are only temporary, reports Vanguard, and will be removed once the currency has stabilized. “It may be weeks, it may be months, but I can not see it lasting much longer.”