Before we proceed, what do you think that devaluing our currency, naira will mean to you? How will it affect your productivity and growth? Do you think it will affect Nigerian producers?
It was yesterday when the Central Bank of Nigeria, CBN, devalued the nation’s currency from N150 to N160 to the U.S. dollar. In devaluing the currency, the CBN moved the band it wants the naira to trade in to between N150 and N160 to the U.S. dollar, compared with N145-N155 to the dollar it sold previously, due to the prolonged weakness of the naira and high demand of the dollar. At the official market, the naira has always sold above the CBN’s upper band.
At the foreign exchange inter -bank market, yesterday, the naira was trading at around N158.90 to the dollar, having hit an all-time low of N167.40 in October, prior to sharp monetary tightening measures adopted by the apex bank. The CBN Monetary Policy Committee also left its benchmark interest rate unchanged at 12 per cent and its 200 basis point corridor around the benchmark rate. Its recommended deposit rate is 10 per cent while its lending rate is 14 per cent. Interest rates were hiked by a surprise 275 basis points at an emergency meeting in October.
The CBN Governor, Lamido Sanusi, said the headline inflation figure should not be “exaggerated” because it was mostly driven by food inflation and other prices actually declined. Sanusi said the CBN would be ready to react if fuel subsidy removal pushed up inflation but he didn’t expect the policy to have the strong impact on prices some expect.
Cash reserve requirement
The cash reserve requirement of banks was left at eight per-cent, having been hiked from four percent at an emergency meeting in October to help support the naira.
Sanusi who briefed the press at the end of the Monetary Policy Committee, MPC, meeting in Abuja, also announced that the official market would maintain a band of +/- 3.0 per cent, saying that the Naira would, therefore, float between N150 = $1 and N160 = $1.
In Malam Sanusi’s words, the committee decided to “adjust the mid-point of target official exchange rate from N150/$1 to N155/$1 and maintain the band of +/- 3.0 per cent. This means that the Naira should float roughly within a range of N150/$1.00 –N160.00/$1.00, unless extraordinary shocks necessitate a change in stance.”
Sanusi noted that the exchange rate opened at N158.48/$1 on October 11, 2011 and closed at N156.05/$1 on November 18, 2011, representing an appreciation of N2.43k or 1.53 per cent within the period.
However, at the inter-bank market, the selling rate opened at N158.90/$1 and closed at N158.62/$1, while at the Bureau de change segment the rate opened at N165/$1 and closed at N160.00/$1.00 for the period. The CBN boss said the organization would continue to seek the convergence between the official weekly Dutch Auction System, WDAS, of the apex bank and the inter-bank rates “to reduce arbitrage opportunities, avoid speculative attacks, and the emergence of a multiple-exchange rate environment.” The Monetary Policy Rate, MPR and the Cash Reserve Ration were maintained at 12.0 per cent and 8.0 per cent, respectively.
Sanusi said the nation’s External Reserves stood at $34.38 billion as at November 17 but noted that the slow accruals has continued to characterize the reserves, at the face of sustained pressure at the foreign exchange market. This, he said made diversification of the nation’s foreign exchange reserve base more imperative than ever, as according to him, there were no indications that the financial crisis in the Eurozone and Americas could be resolved in the immediate future and could impact negatively on oil prices. He said: “In the case of some countries of the Euro area, the markets are still not certain that risk of sovereign default will be addressed expeditiously and in an efficient manner.
These concerns have opened up issues relating to financial stability, given the considerable exposures of banks and other financial institutions to government securities across countries. Consequently, financial markets have become nervous with the uncertainties reflected in the volatility of stock, bond and foreign exchange markets. Current account imbalances are also projected to be high in 2011 in both the US and the Euro area.
“Growth performance of industrial and emerging economies in 2012 is vital to Nigeria’s economic performance. Oil demand, in the committee’s view, would soften as a consequence of slow global growth and would necessitate comprehensive and sound policy actions to help diversify the domestic economy away from oil.”
In spite of several challenges, Sanusi said the nation’s economy had a positive outlook as he put real output growth as at third quarter at 7.40 per cent, with non-oil Gross Domestic Product, GDP, put at 8.81 per cent in the same period. Nigeria’s real GDP for 2011 has been projected at 7.69 per cent.