The Central Bank of Nigeria latest move on the Nigeria Naira, announced the technical devaluation of the naira, the head of research at Afrinvest West Africa Ltd., Ayodeji Ebo.
He was reacting to the Central Bank of Nigeria decision to leave the naira to market forces, a flexible exchange rate regime aimed at making foreign currencies more accessible which has nullified the official exchange rate regime of N197 per a dollar.
It is a technical devaluation,” Ayodeji said according to Bloomberg. “The objective is clear. It will open up the foreign-exchange market, once there is liquidity.”
Central Bank of Nigeria had said it would make dollars available to companies importing “critical” materials, while others would have to buy foreign currency in the market. Details of how the new system will operate have yet to be determined.
“If my interpretation’s right, they’re not going to throw away their reserves trying to manage the exchange rate and they’ll let the market determine that exchange rate,” Charles Robertson, London-based chief economist at Renaissance, added.
“They’ll allocate dollars to those key sectors that will help Nigeria change the structure of its economy, probably agribusiness, industry and oil refineries,” Robertson said. “It sounds like the right policy stance to get Nigeria working again, although they’ll be an inevitable lag as devaluation always carries some short-term pain.”
Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, who announced this at the end of the Monetary Policy Meeting, in Abuja, also said the Monetary Policy Rate, MPR, was retained at 12 per cent; Cash Reserve Ratio, 22.5 per cent; and Liquidity Ratio, 30 per cent.
The apex bank’s Monetary Policy Committee, MPC, which made this decision, chose to retain its Monetary Policy Rate, MPR, at 12 per cent, Cash Reserve Ratio, CRR, at 22.5 per cent and Liquidity Ratio at 30 per cent. Details of the new foreign exchange market policy, according to the Central Bank of Nigeria Governor, Mr. Godwin Emefiele, would be released in due course. He, however, said the apex bank would retain a special window to fund critical transactions in foreign exchange, which would likely attract a concessionary rate.