The Monetary Policy Committee (MPC) of the Central Bank of Nigeria on November 25 2014, were compel to devaluate the Naira from N155 to N168 to the US dollar.
The Central Bank Governor, Mr. Godwin Emefiele disclosed this shortly after MPC meeting at the bank’s headquarters in Abuja.
The Monetary Policy Committee tightened the central bank’s monetary policy by conceding some suppleness in the exchange rate to stem speculative activities and depletion of reserves.
The MPR serve as the anchor rate at which the CBN, in performing its role as lender of last resort, lends to Deposit Money Banks to enhance liquidity in the banking system.
The Monetary Policy Rate was also increased by the bank from 12% to 13%.
By this increase of 100 basis points in MPR, the cost of funds to the banking system from the Central Bank has now increased which leads to an increase in lending rate from commercial banks to businesses.
The CBN governor also reported that given the level of glut liquidity in the banking system, it becomes essential for the CBN to tackle the sources of foreign exchange demand pressure.
To accomplish this, it devalued the naira by moving the midpoint of the official window of the foreign exchange market from N155 to N168 to a dollar.
The committee also granted a widening of the band around the midpoint by 200 basis points from +/-3 percent to +/-5 percent he said.
Also, another decision that was made at the end of the two-day meeting, according to Emefiele, is a raise in the Cash Reserves Requirement on private sector deposits by 500 basis points from 15% to 20% with abrupt effect.
The bank also retained the public sector Cash Reserves Requirement (CRR) at its present level of 75%; maintained the symmetric corridor of +/- 200 basis points around the MPR, retained both the public sector CRR at 75% and the foreign exchange trading position at 1%.
“The committee was of the opinion that the economy stood to gain by further tightening of monetary policy stance to anchor inflation expectations; and some flexibility in the exchange rate to stem speculative activities and depletion of reserves.
“Consequently, the Committee decided as follows; increase the MPR by 100 basis points from 12 to 13 per cent, increase the CRR on private sector deposits by 500 basis points from 15 per cent to 20 per cent with immediate effect; move the midpoint of the official window of the foreign exchange market from N155/US$ to N168/US$,” the governor said.