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CBN devalues naira

CBN devalues naira

The battle to save the naira may have been lost, with the Central Bank of Nigeria (CBN) yesterday devaluing the currency.

The move is aimed at curtailing speculations against the currency, which has been battered by the relentless slide in the price of oil.

The CBN increased the benchmark interest rate to 13% from 12%. Nine of the 11 members of the Monetary Policy Committee (MPC) voted for the devaluation. The naria is now to trade at N168 to $1 from the previous N155.

“Although we had forecast some tightening, the Central Bank has exceeded expectations,” said Razia Khan, head of African macro research at Standard Chartered Bank in London.

“[It] has shown absolute commitment to dealing with current challenges [and] we think that these measures deal as comprehensively as possible with the challenges facing Nigeria,” she added.

CBN Governor Godwin Emefiele announced the decision at the end of the MPC meeting. The last time the interest rate was tinkered with was exactly two years ago.

Other new monetary policy measures the CBN announced include increasing the Cash Reserve Ratio (CRR) on private sector deposits by 500 basis points from 15 per cent to 20 per cent with immediate effect; widening the band around the midpoint by 200 basis points from +/-3 per cent to +/-5 per cent; retaining public sector CRR at its current level of 75 per cent; maintaining a symmetric corridor of +/- 200 basis points around the MPR; retaining public sector CRR at 75 per cent and retaining the foreign exchange trading position at one per cent.

Emefiele said the Committee believed that “a more flexible naira in the face of non- existent fiscal buffers was the most viable policy option at a time of heightened demand pressure for foreign exchange and falling oil prices”

The committee, he said, “was of the view that if it failed in taking the right policy actions now, the market would force the CBN to take more drastic actions in the future with far less foreign exchange reserves”.

Another reason for devaluing the naira, Emefiele pointed out, was the level of excess liquidity in the banking system. This development, he lamented, had made it imperative for the CBN “to address the sources of the foreign exchange demand pressure as a result, the Committee was of the opinion that the economy stood to gain by further tightening of monetary policy stance to anchor inflation expectations; and allowing some flexibility in the exchange rate to stem speculative activities and depletion of reserves.”

He said the CBN will confronts the issue of declining external reserves head-on in order to strengthen the value of the naira. Consequently, stabilising prices and maintaining exchange rate stability and charting a sustainable path for medium to long-term growth are the immediate top priorities.”

The CBN governor noted that the current economic challenges required bold policy moves on both the demand and supply sides of the foreign exchange market. “Consequently, bold policy and administrative measures in the management of the nation’s stock of foreign exchange reserves have become inevitable in order to align the market towards its long-run equilibrium path,” he said.

The Central Bank, he assured, “remains committed to a stable exchange rate within the limits of available resources and would continue to maintain sufficiently strong level of external reserves to meet its short term obligations and other regular balance of payments commitments”.

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