The Central Bank of Nigeria (CBN) yesterday devalued the naira by eight per cent just as it increased the benchmark Monetary Policy Rate (MPR) by 100 basis points to 13 per cent, up from the 12 per cent rate, amongst a raft of measures aimed at preserving economic stability as oil prices and external reserves dwindled.

Rising from a two-day meeting the CBN’s Monetary Policy Committee also increased banks’ Cash Reserve Ratio on private sector deposits from 15 per cent to 20 per cent with immediate effect.

The midpoint of the official window of the foreign exchange market moved from N155/US$ to N168/US$ in line with the current interbank rates which appeared more realist and in line with analysts’ expectations.

However, it decided to widen the band around the midpoint by 200 basis points from +/-3 per cent to +/-5 per cent.

The apex bank retained CRR on public sector deposits at its current level of 75 per cent as well as the symmetric corridor of +/- 200 basis points around the MPR. The foreign exchange trading position was also held at one per cent.

Briefing the media at the end of the two-day meeting of the Committee in Abuja, the Chairman and Governor of the CBN, Mr. Godwin 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,

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 confronts the issue of declining external reserves, financial system stability and inclusive growth of the economy head-on in order to consolidate on the recent achievements of adopted policies.

According to him, consequent upon the relatively precarious foreign exchange earning position of the country and its implications for macroeconomic stability, the immediate priorities of the Bank are to stabilise prices and maintain exchange rate stability and chart a sustainable path for medium to long-term growth of the economy.

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.

Emefiele explained that it was the view of the Committee that if the apex bank failed to take the right policy actions now, the market would force it to take more drastic actions in the future with far less foreign exchange reserves.

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 monetary 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 industrialisation 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 have to 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.”

Emefiele advocated the need for the states to rev up their Internally Generated Revenue, IGR, drives 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 it into law and using it as legislative instrument for attracting investments into the upstream sub-sector and improve transparency and accountability on aspects of the sub-sectors’ operations.

South Africa’s telecomm operator, MTN, which get most of its revenues from Nigeria, declined to quantify the impact on its revenues of the devaluation, which was triggered by a sharply weaker interbank naira rate over the last two months. However, it noted that the currency movement would also reduce its costs.

“We endeavour to have as large a portion as possible of our costs in each operation denominated in local currency, which would in turn offer some protection against the currency movement,” it said in a statement made available to Reuters.

Although the naira is near a record low against the dollar, it is faring slightly better against South Africa’s rand, MTN’s reporting currency.

•Source: National Mirror. Photo shows CBN Governor Emefiele.