The Monetary Policy Committee of the Central Bank of Nigeria on Monday endorsed the devaluation of the naira against the United States dollar by N5 from N150 to N155.The endorsement was the highpoint of the committees meeting held at the apex banks headquarters in Abuja.The 12- member committee also maintained the band of the naira within a range of +/-3.0 per cent.This means that the naira will continue to float roughly within a range of N150 to N160 to the dollar.Prior to the decision to further devalue the currency, the naira had been floating in the range of N145 to N155 to the dollar.The committee at its meeting also left the Monetary Policy Rate unchanged at 12 per cent.Before now, the MPC had raised the benchmark lending rate six times within the last 10 months.Addressing journalists shortly after the meeting, the apex bank governor, Mr. Lamido Sanusi, said the proposal to retain the MPR at the current rate was unanimously endorsed by the 11 members, who attended the meeting.He pointed out that the committee also left the Cash Reserve Ratio at eight per cent, adding that the country was ahead of all other African countries in anticipating the impending danger of inflation.These decisions, according to him, will further help to check inflationary pressures as well as maintain a stable equilibrium in the foreign exchange market.He pointed out that the mixed signals sent by inflation figures in the month of October represented a 20 basis point increase from 10.3 per cent to 10.5 per cent.This, he noted, should not be "exaggerated."He, however, explained that the decision to adjust the exchange rate was enforced in order to protect investors from losing their money to exchange rate fluctuations as well as ensuring relative stability of the naira.The CBN governor said, "The committee noted the continuing demand pressures in the foreign exchange market and the slow rate of reserve accretion as indicators that liquidity conditions may still need further tightening. "On the other hand, lending rates are already high and having impact on the real sector, and global headwinds may make further tightening counter-productive and pro-cyclical should oil price fall significantly. "Also, a combination of small fiscal adjustments and moderate depreciation in the exchange rate of the naira should compensate for maintaining current interest rate stance. Finally, the committee noted that December is usually a period of muted economic activity and an appropriate time to pause and assess the full impact of the recent tightening decisions after a lag."In view of this, the committee decided by a unanimous vote to retain the MPR at 12 per cent, the symmetric band at +/-200 basis points and the CRR at eight per cent. The committee also decided to adjust the mid-point of target official exchange rate from N150.00/US$1.00 to N155.00/US$1.00 and maintain the band of +/-3.0 per cent. This means that the naira should float roughly within a range of N150 to N160, unless extraordinary shocks necessitate a change in stance."Sanusi said the committee would continue to seek convergence between the Wholesale Dutch Auction System and the inter-bank rates to reduce arbitrage opportunities, avoid speculative attacks and the emergence of a multiple-exchange rate environment.In his reaction to the outcome of the meeting, the Managing Director, Financial Derivative Company Limited, Mr. Bismarck Rewane, said the move to have a new midpoint for the exchange rate would ensure that it was at equilibrium."Its better because demand will drop henceforth. In my own view, they did the right thing. Anytime, theres increase in the demand of a commodity, the normal thing to do is to increase the price. It is simple law in economics. Now, the demand will drop because people will have to pay more to get the dollar," he said.The Chief Executive Officer, Financial Market Dealers Association of Nigeria, Mr. Wale Abe, said, the decision would narrow the gap between demand and supply of the dollar."The tendency that people will flood the parallel market will reduce. There was a lot of pressure in the parallel market because the dollar demands were not met at the official market," he said.''''.
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