LAGOS, June 30 (Reuters) - Nigeria's central bank inched its exchange rate peg lower on Tuesday while domestic investors worried about a slide in the naira pushing inflation higher switched out of bonds into short-dated paper, traders said.
The naira slid to 228 to the dollar on the parallel market on Tuesday, down 0.88 percent from the previous day, while the yield on the 2024 bond in the JP Morgan Government Bond Index (GBI-EM) rose 40 basis point to 14.74 percent.
The central bank moved its naira peg to 196.95 against the dollar on Tuesday from 196.90 naira it set last week, the fourth time it has tweaked the peg since it was introduced in February.
Traders said the move may indicate that the bank is beginning to think about how to loosen its currency regime.
"There is no change to FX policy, therefore the locals are getting a bit nervous thinking that offshore investors will not be coming back any time soon," said Kevin Daly, portfolio manager at Aberdeen asset management.
"Effectively, the bond market is starting to price in a much wider move on the currency," he said.
Traders said on Monday the negative outlook for inflation , which is hovering around the central bank's upper limit of 9 percent, was one reason why local investors were selling bonds.
The most liquid 5-year bond yield rose to 14.95 percent, up from 14.71 percent the day before the bank unveiled the currency rules last week, but below 15.5 percent on the eve of the presidential election in March.
On the interbank market, the naira traded $50.15 million, with bulk of the trades executed at the new central bank rate of 196.95, traders said.
Another trader said the central bank may be trying to gauge the level at which it can defend the naira, but noted the bank was running low on ammunitions to do this.
Foreign reserves in Africa's top oil producer declined to $29 billion as of June 26, the central bank said, down from $29.6 billion at the end of May and 22.1 percent lower than a year ago.
Last week the bank, seeking to conserve dollar reserves, stopped importers from accessing hard currency from the interbank market, further tightening liquidity and adding to market jitters.
JP Morgan has warned it may remove Nigeria from its Government Bond Index by the end of the year unless Africa's biggest economy restored liquidity to currency markets in a way that allowed foreign investors tracking the benchmark to transact with minimal hurdles.
(Additional reporting by Oludare Mayowa in Lagos and Sujata Rao in London; Editing by David Clarke and James Macharia)
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