Published On: Tue, Jan 26th, 2016

Naira devaluation likely as CBN meets

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ABUJA, (CAJ News) – THE Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is meeting amid a high possibility of the devaluation of the Naira.

The meeting comes amid the local currency weakening on the back of plummeting oil prices in the international markets.

Analysts have been vocal on devaluation while the bank has insisting on the  current rate of 0,005 to the US$.

“However, it does little to address the possibility of a balance of payments crisis which would in fact demand a tighter monetary policy stance. The CBN afforded the topic very little airtime in its MPC
announcement, skimming over the sustained deceleration in Nigeria’s exports and waning portfolio demand,” Rand Merchant Bank (RMB) stated on Tuesday.

However, the financial firm is therefore sceptical of the CBN’s position.

“While its reaction function is clearly biased toward real GDP growth, it makes very little allowances for mounting inflationary or foreign exchange pressures. The measures undertaken at the November meeting could prove to be a policy mistake.”

As such, RMB expect the policy rate to remain unchanged at 11 percent in the first half of the year.

“We do, however, assume an orderly devaluation at today’s (Tuesday) MPC and a gradual depreciation thereafter.”

The company said despite adjustments to the composition of state revenues in the 2016 budget, the finance ministry’s underlying assumptions are still overly optimistic, necessitating a more significant devaluation of the exchange rate to realise projected oil earnings.

Based on its calculations, RMB believes a 12,7 percent devaluation from the current level of $/198 is necessary to ensure the government’s revenue target is met.

CAJ News

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