The Central Bank of Nigeria (CBN) has
taken a holistic monetary palliative aimed
at ensuring Naira exchange rate stability
and forestalling the potentially dangerous
impact of the falling oil prices in the
international oil market on the economy.
The CBN has finally bowed to pressure to
devalue the Naira after several months of
battling to defend the exchange rate
against demand pressure using the
nation’s foreign reserves.
It reduced the official naira-to-dollar
exchange rate to N168/$1, forcing down
the currency down by N13 down from
N155/$1 as the country struggles to
reshape its fiscal policies in response to
dwindling oil price which has taken its toll
on the foreign reserves and raised the
benchmark interest rate.
The monetary policy rate (MPR) was
raised by 100 basis points from 12 per
cent to 13 per cent, a move that will see a
major increase in the cost of capital as
banks increase their lending rates to
reflect the change. It also increased the
cash reserve ratio (CRR) for private
sector deposits from 15 per cent to 20
per cent while retaining public sector CRR
at 75 per cent.
Rising from the two-day Monetary Policy
Committee (MPC) meeting yesterday, CBN
governor Godwin Emefiele said the
decision to lower the value of naira
against the dollar was taken to
strengthen the currency.
Emefiele said the decisions were taken
after critically considering the options
open to the regulatory institution to stem
the tide of declining external reserves,
ensuring Naira exchange rate stability and
sustaining inflationary rate at single digit
as well as ensuring credit to key sectors
of the economy,
The naira has come under intense
pressure in recent months following
continuous slide in oil prices, forcing the
CBN to step into the currency market
defend the exchange rate. But with
depletion in foreign reserves, it has only
been able to temporarily sustain the
exchange rate from time to time.
Though
speculations of devaluation have been
rampant, the CBN had not taken any step
in that direction until yesterday.
Describing the emerging developments at
local and international economic
environments as calling for serious fiscal
and monetary palliative measures at the
domestic level, Emefiele explained that the
Nigerian situation demanded that the CBN
confront the issue of declining external
reserves, financial system stability and
inclusive growth of the economy head-on
in order to consolidate the recent
achievements of adopted policies.
While assuring of the committee’s
commitment to these measures in order
to sustain the credibility of the Bank’s
policies and anchor the expectations of
core stakeholders, the CBN governor
defended the committee’s stance for a
more flexible naira in the face of non-
existent fiscal buffers as the most viable
policy option at a time of heightened
demand pressure for foreign exchange
and falling oil prices.
Reacting to media enquiries on how
Nigeria can effectively cope with the
pricing uncertainties in the oil market, the
CBN governor, who described the $73 oil
price benchmark for 2015 budget as good
but not pessimistic enough to protect the
downside of the economy as an interim
measure, said he foresaw that the
tightening measures will continue unless
there was an improvement in the global
economy, particularly in the area of oil
price which is currently exposing the
Nigerian economy to some vulnerability.
On the dwindling foreign reserves and
what could be done to mitigate the
pressures, Emefiele noted that the only
viable long-lasting option for the country
remained the diversification of its
economic base and reduced importation
of goods and services,
He said: “I think what could have been
done is that we could have taken
measures to diversify our economy.
We
have certain infrastructural issues that we
need to deal with. There is a need for us
to diversify. Why should we be importing
rice? Why should we be importing fruit
juice into the country? Why should we be
importing milk? In fact, before I was born,
milk was being imported into this country,
what rocket science do we need to
produce milk?
“It is just for people to get committed and
embrace agriculture. We need to refocus,
we need to look inwards, there are so
many countries today that started their
drive towards industrialization many years
ago just like us and they have made
progress; they have transformed their
economies from being import-dependent
economies to economy that can be seen
to have embraced import substitution.
“I must confess that at this stage, we
don’t have a choice, we must embrace
import substitution before we talk of
export-oriented industrialisation. We must
move away from importing these goods
that are creating a lot of pressures on our
reserves. If we do this, our reserves will
get stronger,” he said.
Emefiele also advocated the need for the
states to rev up their Internally Generated
Revenue drive by exploring non-oil
productive activities within their domains
in view of the uncertainties of
distributions from the Federation
Accounts in the months ahead.
In addition, he also pointed out the need
by the National Assembly to fast-track
the ongoing deliberations on the
Petroleum Industry Bill, PIB, with a view
to passing into law and using it as
legislative instrument for attracting
investments into the upstream sub-sector
and improve transparency and
accountability in the sub-sectors’
operations.
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