UPDATE 3-Nigeria's central bank lifting forex restrictions

(Adds background on Soludo)

By Camillus Eboh

ABUJA May 22 (Reuters) - Nigeria's central bank said on Friday it would return to a fully liberalised foreign exchange market over the next three months, allowing banks to freely trade among themselves after months of restrictions.

The relaxation of the restrictions is positive news for foreign investors who had been unnerved by a lack of clear commitment on when the return to a freely-determined exchange rate might come, analysts said.

The regulator said it was increasing the net foreign exchange open position for banks to 2.5 percent from 1 with immediate effect, a first step toward lifting measures brought in in February to stem the naira currency's sharp decline.

February's measures gave the central bank a tighter grip on the exchange rate by preventing banks from trading dollars among themselves but created a wide disparity with the parallel black market, the only alternative for U.S. dollar purchases.

Central Bank Governor Chukwuma Soludo said the monetary policy committee (MPC) had decided at a meeting on Thursday that the exchange rates had stabilised at both the official and parallel markets and that the mid-term outlook was now stable.

"Consequently, the MPC decided to review the series of controls it put in place a few months ago over the next three months and return to the fully liberalised regime we had before the recent controls," Soludo said.

"We believe that the premium between parallel and official exchange rates would narrow significantly in the days ahead. We can sustain the changes over time," he said.

At its daily foreign exchange auction on Thursday, the central bank sold naira NGN= at 146.63 to the dollar, while the local currency was trading on the black market at 182.

Soludo said the MPC had also decided to issue short-term treasury bills to try to mop up excess liquidity.

SWAN SONG?

Soludo's five-year term expires on May 29 and there has been intense speculation over whether President Umaru Yar'Adua will decide to reappoint him. For more see [ID:nLB99422].

The Leadership newspaper cited sources in the presidency on Friday as saying he would be replaced by Lamido Sanusi, the head of First Bank FBNP.LG. [ID:nLB101900]

Some analysts said Soludo appeared to be attempting to reassert his reformist credentials with Friday's announcement.

February's measures came after the naira fell more than 20 percent against the dollar in two months as the world's eighth biggest oil exporter battled with lower foreign earnings caused by a weaker oil price CLc1 and the global economic downturn.

But firmer oil prices in recent weeks and stable production despite unrest in the Niger Delta, the heartland of Nigeria's oil industry, mean the outlook for its finances has brightened.

"We estimate the current account is in a small surplus, equivalent to 3 to 4 percent of GDP," said Mike Hugman, emerging markets strategist at Standard Bank.

"With reserves still at very strong levels, having been protected by the adjustment in the naira, the CBN is able to lift temporary restrictions," he said.

Soludo said foreign reserves stood at $45 billion, down from around $45.7 billion at the start of the month.

The central bank had repeatedly given assurances that the forex restrictions were only temporary, but they unnerved some investors who saw them as a roll-back of liberal reforms.

Iceland and Ukraine also introduced capital controls at the height of the financial crisis, but are seen being much slower to relax them as their economies were amongst the most exposed in the world to the crisis.

Some senior Russian officials had also called for controls to protect the rouble but the general decline in the dollar against a range of currencies and recovery in the oil price is seen reducing the risk of new controls in regional economies.

"It's particularly positive because the CBN had said these were temporary restrictions, and they are delivering on their promise to remove them as soon as possible," Hugman said.

(To see FACTBOX-Nigeria's capital controls click on [ID:nLM20112])

(For full Reuters Africa coverage and to have your say on the top issues, visit: af.reuters.com/ ) (Writing by Nick Tattersall; Editing by James Dalgleish)