CBN DEVALUES NAIRA, RAISES LENDING RATE

• N168 to exchange for $1
• Borrowers to pay more

In deft move to salvage the dwindling fortunes of the naira and shore up external reserves, the Central Bank of Nigeria, CBN rose from its Monetary Policy Committee, MPC, meeting yesterday to announce the devaluation of the naira and hike in interest rate.

Addressing journalists in Abuja after the meeting, the CBN Governor, Mr. Godwin Emefiele announced that the midpoint of the official window of the foreign exchange market has been moved  from N155/US$ to N168/US$, stressing that the MPC widened the band around the midpoint by 200 basis points from +/-3 percent to +/-5 percent.

The apex bank boss disclosed that other critical decisions taken was the increase of the Monetary Policy Rate, MPR by 100 basis points from 12 to 13 percent; increase of the Cash Reserve Ratio, CRR on private sector deposits by 500 basis points from 15 percent to 20 percent with immediate effect and retention of public sector CRR at its current level of 75 percent.

The CBN also maintained a symmetric corridor of +/- 200 basis points around the MPR, retained Public sector CRR at 75 percent, and the foreign exchange trading position at 1 percent.

It would be recalled that since 2012, the Bank has maintained a tight regime of monetary policy with the MPR and CRR mostly remaining unchanged at 12 percent.

Responding to questions from the media on the decisions taken by the MPC, he said that the current situation demands that the Bank confronts the issue of declining external reserves head-on in order to strengthen the value of the domestic currency.

According to him, “stabilising prices and maintaining exchange rate stability and charting a sustainable path for medium to long-term growth are the immediate top priorities.”

He also said that the Committee remains committed to these in order to sustain the credibility of its policies and anchor the expectations of its core stakeholders.

“In the Committee’s opinion, 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,” he said.

He also said that the Committee was of the view that if it failed in taking the right policy actions now, the market would force the Bank to take more drastic actions in the future with far less foreign exchange reserves.

Also, given the level of excess liquidity in the banking system, it becomes imperative for the Bank to address the sources of the foreign exchange demand pressure.

Emefiele argued that the Committee was of the opinion that the economy stands 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.”

Speaking on the dwindling state of Nigerian foreign reserve, Emefiele advocated for diversification of the economy by moving from import dependent to import substitution economy in order to save the continued draining of the country’s reserves through importation of both consumer goods and industrial goods.

Already, the equity market reacted positively at yesterday’s trading, closing on a positive note, as NSE ASI appreciated by +0.71% to close at 34,115.84 basis points, compared with the -0.15% depreciation recorded previously. Its Year-to-Date (YTD) returns currently stands at -17.47%.

Also, many financial experts have reacted to the development from the CBN.