CBN devalues Naira by 8.3%

Much in line with analysts’ expectations, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted to save the nation’s fast declining foreign reserves pool by officially devaluing the Naira by N13 or 8.3 per cent.
Reading the communiqué at the end of the two-day meeting which began on Monday, Godwin Emefiele, the MPC chairman and CBN Governor, said all 11 members voted to move the midpoint of the official window of the foreign exchange market from N155/US$ to N168/US$.
The CBN also increased the benchmark Monetary Policy Rate (MPR) from 12 to 13 per cent, and the Cash Reserve Requirement (CRR) on private sector deposits from 15 per cent to 20 per cent with immediate effect, the first time in three years.
The meeting, however, opted to retain public sector CRR at its current level of 75 per cent, besides retaining public sector CRR at 75 per cent, and the foreign exchange trading position at 1 per cent.
Emefiele said the measures became necessary in view of developments in the international oil market, which have intensified the risks and vulnerabilities faced by oil exporting countries like Nigeria in the wake of falling oil prices, and the absence of clear signals on how far and long the episode would last.
“The current situation demands that the (CBN) confronts the issue of declining external reserves head-on in order to strengthen the value of the domestic currency. 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 committee remains committed to these in order to sustain the credibility of our policies and anchor the expectations of our core stakeholders,” he stressed.
The move to save the nation’s reserves has become necessary in view of the almost $2 billion slide in the past month to a five-month low of $37.2 billion, just as the Naira fell to N178/$ on Monday.
Analysts at BGL, in a pre-MPC meeting report at the weekend, had warned that a “no action,” is not an option at the meeting, even as “every option available to the committee for the purpose of maintaining stability has associated costs.”
Reacting to the MPC decisions in an interview with CNBC Africa, monitored in Lagos, Bismarck Rewane, chief executive of Financial Derivatives Limited, described the prescriptions as “bold and audacious.”
He noted that N168/$ is a fair and effective value of the Naira, even as he expects that the inter-bank rate would initially rise and later correct itself. With these, he said no further actions are expected by the apex bank until after the elections beginning in February.

The implications of these actions, according to Rewane and Dapo Olagunju, Group Treasurer at Access Bank Plc, include about N100 billion would be sterilised following the CRR hike; and a banking sector liquidity ratio of 36 per cent.
The measure is also expected to hamper the ability of banks to lend to their customers.
Rewane noted that the hike in rates also means about N400 billion would be taken away from circulation while Olagunju added that between N40 and N45 billion banking sector profit would be taken out over the next 12 months.
This, analysts at BGL Group said in their post-MPC meeting reaction, is “considering the opportunity cost of 10-12 per cent rates on treasury bill and money market instruments.”
For Rewane, “all things considered, the MPC decisions show signs of courage, and candour.”
In an e-mailed reaction, Razia Khan, head, Africa Economic Research at Standard Chartered Plc, London also expressed surprise that the CBN could go so far, noting that “the CBN MPC has exceeded expectations.
“With these moves the CBN has shown absolute commitment to dealing with current challenges. They have not shied away from the tightening needed to sustain current FX (foreign exchange) reserves. The official devaluation of the NGN allows the RDAS (Retail Dutch Auction System) to move within the range that straddles the interbank FX rate.
“…We think that these measures deal as comprehensively as possible with the challenges facing Nigeria. While Nigeria cannot do much to influence the oil price, the combination of measures today sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macro-economic stability,” she added.
Emefiele also noted the November 2014 national unemployment survey by the National Bureau of Statistics (NBS) revealed that a total of 349,343 new jobs were created during the third quarter of 2014 compared with 259,353 jobs in the preceding quarter.
He added that the CBN’s development initiative under the N200 billion Commercial Agriculture Credit Scheme (CACS) has created 166,790 jobs since inception in September 2009.
While noting with satisfaction that the reforms in the power sector and other complementary policies, the committee posited that it would promote investment and create the needed jobs for inclusive growth if followed through.
The committee noted the current down-turn in oil prices is not transitory but appears to be permanent; being a product of technological advancement. Currently, the U.S. which used to be Nigeria’s former major oil export destination now meets on average 80 per cent of its domestic oil demand from local shale oil retorting technology production and exports over eight million barrels of crude oil daily.
The committee therefore pointed out that “the softening crude oil prices could provide necessary leverage for the fiscal authority to reduce budgetary outlays on fuel subsidy and channel such savings to growth enhancing sectors of the economy.
“The committee took note of the supportive fiscal stance in this regard and public commitment to take advantage of the low oil price to reduce fuel subsidy spending and liberalise prices as in many emerging economies.
“Furthermore, the Committee expressed satisfaction with the recent demand management measures announced by the fiscal authorities to contain pressure in both the goods and money markets and provide some respite in the near term.