Nigeria devalues currency, N168 = $1
ABUJA—The Central Bank of Nigeria Tuesday devalued the national currency, the Naira, as it moved the midpoint of the official window of the foreign exchange market from N155 to N168 to US$1.
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This means that the Naira will exchange between N168 and N174 to the dollar at the foreign exchange market.
Official devaluation of the naira became inevitable as a result of a reduction in government revenue from oil production and sales. The devaluation will increase the volume of Naira available to the federation account and to various levels of government to prosecute their local programmes.
The CBN Monetary Policy Committee also, yesterday, raised the interest rate benchmark from 12 per cent to 13 per cent, thus signalling that interest rates charged by banks will go up further than they are now. The apex bank monetary policy committee further raised the cash reserve requirement for non-government deposits in banks to 20 per cent from its previous 15 per cent position while retaining the cash reserve requirement of 75 per cent for government and their agencies’ deposits in banks.
Briefing the press on the outcome of the 98th meeting of the Monetary Policy Committee, in Abuja, CBN Governor, Mr. Godwin Emefiele, said that the combination of low accruals into the nation’s foreign reserves, owing to falling oil prices at the international market; continual depletion of the reserves; and high demand at the foreign exchange market made it difficult for the apex bank to continue to defend the Naira.
“All the 11 members voted to move the midpoint of the official window of the foreign exchange market from N155/US$ to N168/US$”, he said.
The CBN boss regretted that the high demand at the forex market was the handiwork of speculators and threatened to deal with those found to be involved in infractions. The wide gap between the exchange rate of N155 to $1 at the official market and about N178 to $1 at the Bureaux de Change made round tripping obviously very attractive.
Justifying the devaluation, Mr. Emefiele noted that there had been a consistent devaluation at the interbank and BDC segments of the forex market and that in spite of exclusion of some items from being funded through forex from those markets, the demand pressure continued, necessitating more far-reaching measures to ensure stability of the exchange rate.
His words: “The depreciation at both the interbank and the BDC segments largely reflected recent demand pressures arising from falling oil prices and dwindling external reserves. As part of the demand management measures, the Bank in two recent circulars excluded certain import items from the rDAS window.
Despite the tight measures, the high demand for foreign exchange has continued unabated. This demand does not seem to have any bearing on the genuine foreign exchange needs of the country, which the Bank stands ready and has the capacity to meet. The current level of external reserves provides cover for approximately seven months of imports.
Reserves down from $40.7b to $36.75b
Justifying the decision to devalue the Naira, the CBN boss disclosed that the nation’s foreign reserves lost more than $3 billion in one and a half months to efforts to defend the Naira.
His words: “Developments in the external sector since September 2014, manifested in a build-up of pressures in the foreign exchange market. While the Bank sustained its efforts to maintain the stability of the Naira exchange rate at the rDAS window, a considerable degree of weakening was recorded at both the interbank and Bureaux de Change (BDCs) segments.
“The exchange rate at the rDAS window during the review period opened at N157.31/US$ and closed at N157.32/US$, reflecting a marginal depreciation of N0.01k. To maintain and stabilize the exchange rate at that level, gross official reserves declined from US$40.7 billion on 17th September, 2014 to $36.75 billion at end-October 2014. From year-to-date, substantial currency depreciation has occurred in comparator oil exporting countries but the Naira has depreciated by only 1.74 per cent.
“The depreciation at both the interbank and the BDC segments largely reflected recent demand pressures arising from the falling oil prices and dwindling external reserves. As part of the demand management measures, the Bank in two recent circulars excluded certain import items from the rDAS window. Despite the tight measures, the high demand for foreign exchange has continued unabated, This demand does not seem to have any bearing on the genuine foreign exchange needs of the country, which the Bank stands ready and has the capacity to meet. The current level of external reserves provides approximately seven months of imports cover.
The apex bank also took steps to tighten money supply as it increased the MPR by 100 basis points from 12 to 13 per cent, widened the band around the midpoint by 200 basis points from +/-3 per cent to +/-5 per cent and increased the CRR on private sector deposits by 500 basis points from 15 per cent to 20 per cent with immediate effect.
It however, retained public sector Cash Reserve Ratio, CRR, at its current level of 75 per cent.
Credit: Vanguard Nigeria