(Bloomberg) -- A month after devaluing the naira, Nigeria’s central bank is intervening in the markets to prevent sharper losses in the currency, traders say.

The naira fluctuated on Wednesday before trading at 782.36 per dollar, staying within the band of 750-790 it has traded in for the past two weeks, based on Bloomberg pricing. But there had been bids for the greenback as low as 800 nairas on Tuesday before the central bank stepped in with dollar sales, according to Rand Merchant Bank. Traders also said a parallel market in the currency that had vanished after the devaluation has resurfaced.

The interventions are fueling a debate on whether incoming President Bola Tinubu’s pledge to move toward a flexible interest rate meant a free float or just a one-off devaluation followed by a weaker peg. Given the inflation risks of a freer trading currency, traders are seeking further clarification from the central bank on the role of markets in setting naira’s value. Meanwhile, the demand for dollars remains strong, which may have influenced authorities’ decision to boost liquidity.

“The market expects the Central Bank of Nigeria to intervene more than once this week given the size of intervention yesterday and the current demand across the market,” RMB analysts wrote in a note. The central bank did not immediately respond to requests for comment.

Central-bank interventions are helping to avoid swings in the the naira, but the dollar sales have been too modest to say the local currency is getting pegged again, some traders said. 

“The central bank has been intervening into the market over the last two weeks or so to support liquidity but this has not been very consistent,” Ayodeji Dawodu, director at UK-based BancTrust & Co. Investment Bank in London said by phone. “Trades are reportedly being conducted between 700 naira to 800 naira a dollar, which doesn’t seem to indicate controls.”

The currency, which dropped about 40% over the past month, has traded around the 750 level since June 26. Deutsche Bank analysts said this week the currency may not deviate much from current levels pending further clarity on monetary policy. The longer-term outlook for the nation’s investment appeal depends on a complete elimination of currency controls, Goldman Sachs Group Inc. said last month. 

Tinubu’s economic plan has included the elimination of costly fuel subsidies, a leadership reshuffle at the central bank and a weaker naira — thus reversing the policies of his predecessor Muhammadu Buhari which had distorted Africa’s biggest economy for years. 

Meanwhile, the parallel market saw the naira trading at 800 per dollar, reopening a gap with the official rate that had vanished after the devaluation. 

“The parallel market rate has likely risen in recent days because of the still-limited liquidity in the investors and exporters window,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank.

Deutsche Bank strategists including Anthony Wong and Soha Rizkallah said while the naira now looks more than 20% undervalued based on the bank’s model, stronger reforms were needed for valuations to start correcting.

“More measures would have to be introduced to boost investor confidence, especially with regards to capital repatriation and import restrictions,” they wrote in a note dated July 10. “We stay on the sidelines for now, pending more clarity on the monetary policy front, but are constructive in the medium term.”

--With assistance from Robert Brand.

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