Naira closes at N240 as CBN cuts MPR, CRR

The naira on Tuesday traded at closed rate of N240 against the dollar, losing N5 or 2.17 percent from N235 traded previously at the autonomous market.

The Central Bank of Nigeria (CBN) Monday announced a range of easing measures at its November Monetary Policy Committee meeting.

The Committee reduced Monetary Policy Rate (MPR) from 13 percent to 11 percent, Cash Reserve Requirement reduction from 25 percent to 20 percent, and asymmetric corridor of +2 percent and -7 percent around the MPR.

Consequently, the local currency traded at N238 against the dollar at the Bureau De Change (BDC) segment of the foreign exchange market,

Reacting to the Committee’s decision, Ayodeji Ebo, head, investment research, Afrinvest Securities Limited, said the CBN’s action to buoy aggregate demand side of the economy by increasing liquidity levels and reducing market rates would have a feedback effect on price and exchange stability in the short to medium term.

As the CBN has remained resolute in its resolve to keep administrative measures in place to reduce depletion in the FX reserves and create a contrived stability in interbank FX rates, the effects would be felt in the parallel market for FX where rates would further depreciate, he said.

“We estimate a conservative FX rate of N255/$ at the parallel segment. This may create a vicious cycle of additional tightening of exchange rates rules by the CBN, if accrual to external reserves does not strengthen. The strong pass-through of lower exchange rate on consumer prices in Nigeria suggests high inflationary pressure is inevitable in the short to medium term,” he said.

According to Razia Khan, head of Africa Research at Standard Chartered Bank, “the inference from today’s policy choice is that there are no plans for imminent change to the fixed FX regime currently in place.”

To her, the easing measures are aimed at boosting Nigeria’s real economy. How successful they are will depend on how much other bottlenecks currently constraining real-sector activity can be overcome. The availability of FX for imported inputs will be closely monitored, she said.