Members of the monetary policy committee (MPC) do not expect a marked recovery in the oil price to ease what we term Nigeria's macro worries, and have doubts as to whether the strong medicine they prescribed after their last meeting on 24 and 25 November will cure the patient.
One objective of monetary policy is to encourage credit extension to the private sector. Both the CBN and the MPC feel that the banks should channel surplus liquidity into such lending rather than “play” the fx market and hold FGN paper.
The recent devaluation has drawn attention to the (un)known challenges investors are likely to face. Ordinarily, investors are bound to suffer losses through devaluation in both currency and through decline in the stock market. Though, it is our thinking that the recent devaluation brings about not only problems but opportunities to smart speculators who have anticipated this.
The CBN in a show of independence, has finally taken the bull by the horn on its monetary policy stance. The 8.4% devaluation of the midpoint official exchange rate has effectively moved the exchange rate band to N159.6 - N176.4. This move follows a series of intervention measures already implemented by the CBN, one of which is the transfer of approximately 50% of forex transactions to the interbank market.
Nigeria's central bank devalued the naira by 8% and raised interest rates sharply yesterday in an attempt to curb fiscal bleeding due to the dropping oil prices. The bank moved the naira's target band to 160-176 to the U.S. dollar, compared with 150-160 naira previously, while it also simultaneously increased interest rates by a substantial 100 bps to 13% - the first interest rate hike in over two years.
The monetary policy committee (MPC) meets today and tomorrow in Abuja. Given market turmoil, the depletion of official reserves (by US$1.5bn month-to-date) and the surge of the US dollar globally, the committee does not have the option of leaving its stance unchanged.
President Goodlcuk Ebele Jonathan will travel to London tomorrow evening to preside over a meeting of Nigeria’s Honorary International Investment Council (HIIC) which opens in the British capital on Friday.