The Central Bank of Nigeria (CBN) on Tuesday in Abuja announced devaluation of naira by N13 as part of measures the bank said were aimed at strengthening the nation’s economy.
The CBN Governor, Mr Godwin Emefiele, disclosed the devaluation to newsmen after a meeting of the Monetary Policy Committee.
Emefiele explained that under the new arrangement, the naira would now exchange for N168 instead of the old official rate of N155 to one U.S. dollar.
The naira’s street value had already fallen before the surprise moves announced by Emefiele.
It had been trading at about 183 naira to the dollar, despite the official band of 150-160 naira, and the Central Bank had vowed to continue defending the currency against market pressures.
Emefiele also conveyed the decision of the meeting to increase the Monetary Policy Rate (MPR) by 100 basis point from 12 per cent to 13 per cent.
The MPR is the rate at which banks borrow from the Central Bank to cover their immediate cash shortfalls.
The higher the cost of such borrowing, the higher the rate at which banks advance credit to customers.
Emefiele noted that there was an increase in Cash Reserve Ratio (CRR) on private sector deposits by 500 basis point from 15 per cent to 20 per cent.
The CRR is a monetary tool used to either call up excess liquidity or release funds needed for the growth of the economy as situation demands.
He further said that the public sector CRR will be retained at the current level of 75 per cent and the symmetric corridor of plus or minus 200 basis points around the MPR will be maintained.
“The public sector should be retained at 75 per cent and foreign exchange trading position should also be retained at 1 per cent,’’ Emefiele said.
The CBN governor said the decision to lower the value of naira against the dollar was to strengthen the currency.
Devaluing the currency, especially three months before a general election, may not be a popular move in President Goodluck Jonathan’s inner circle, especially as the Nigerian leader tries to trumpet economic gains as he campaigns for re-election.
But Rewane and other analysts said the CBN had no choice after Nigeria’s main crude product slipped to $78 per barrel, after selling at more than $100 just two months ago.
“It was a difficult decision, but one which everyone believes had to be made,” said Jide Akintunde, editor of the Financial Nigeria magazine.
Finance Minister Ngozi Ikonjo-Iweala acknowledged earlier this month that falling oil prices had created serious challenges for Africa’s top producer, and announced a series of measures including new taxes on luxury items to boost government revenue.
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It's been a long time coming as Central Bank has been propping up the Naira falsely for far too long and under the lower oil prices of recent. The net outflow of foreign currency from our dear nation is too unbridled. But what about dealing with the elephant in the room which is foreign companies bleeding our economy dry by not investing in developing local content in technology diversely....Its our youth and future earnings that are suffering. Address that through NOTAP & mandatory enforcement please Gov. Emefiele!